ETF Winners Under China Stimulus

As China's economy -- the world's second-largest behind the U.S. -- continues adding to what has become a long line of concerning economic data points, speculation intensifies that policymakers in Beijing will move to engineer a soft landing and bolster growth.

Following a second-quarter GDP report showing growth at 7.6% -- a three-year low -- the "something" that traders are looking for is some form of monetary stimulus. Chinese authorities have already hinted any stimulus package will not be the size of the one unleashed during the financial crisis.

Still, "something is better than nothing" is the view some traders currently have of China. Those yearning for a return to more ebullient, risk-on times will want to embrace the following ETFs should China move to stimulate its economy in substantive fashion.

Market Vectors China ETF (NYSE: PEK) The Market Vectors China ETF reminds investors of two important factors. First, China's A shares market has been quite durable this year. PEK is down just 0.73% compared to a loss of 4.8% for the iShares FTSE China 25 Index Fund (NYSE: FXI). Second, PEK is another less heralded China play outpacing FXI, China's largest ETF.

Aside from stimulus measures, China's A-shares market could see its allure enhanced going forward after the China Securities Regulatory Commission boosted its quotas for qualified foreign institutional investors: from $30 billion to $80 billion earlier this year.

Global X China Consumer ETF (NYSE: CHIQ) CHIQ is a worthy China stimulus play for one simple reason: should the country actively engage in stimulus, it's likely those plans will focus on domestic consumption. That makes a lot of sense considering both the U.S. and euro zone are two prime destinations for Chinese exports.

China can do all it wants to fix its own economy, but its ability to materially change the euro zone for the better is limited. CHIQ is a logical winner if China stimulates its economy whereas a Europe ETF is too indirect of a play for investors to really benefit.

EGShares China Infrastructure ETF (NYSE: CHXX) For all the talk of China's real estate bubble and ghost cities, the government knows it can use domestic infrastructure projects for a near-term economic boost. It's easier to do that and deal with the consequences of unused roads and buildings years later than to let the economy languish for too long right now. This is by no means the best economic policy for any country to employ, but it can create long-side opportunities in the EGShares China Infrastructure ETF.

iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) The inclusion of EPHE on this list might imply that Chinese and Philippine equities are intimately correlated with each other or that both countries have a major trading partnership. Regarding the latter point, the two countries are, in fact, trading partners, but only to the tune of about $30 billion, which is not much when China is involved.

As for a correlation between Chinese and Philippine stocks -- if there is one -- it's perfectly inverse. Since October 2010, EPHE has jumped 20.4% compared to a 22.5% loss for FXI.

EPHE makes the list because if investors warm to China again, it is possible they will warm to the Asia-Pacific region at large. Should that happen, the savviest of the lot will turn to those ETFs that have shown leadership throughout 2012. EPHE is one such fund.

BY The ETF Professor