Chinese Stocks Fall 1.51%: Trading on Inflation Fears (FXI, YXI, CHIM, CEO)

Chinese stock prices ended Monday trading in Shanghai down 1.51% due to tighter market liquidity and concerns that the Chinese government would continue tightening monetary policy. The Chinese government has grown increasingly concerned over inflationary pressures facing the country's economy. Inflation rose an unexpectedly high 5.4% in March from the same month a year earlier and in February inflation was up 4.9%. As inflation continues to climb, investors are wondering how much higher it could go, which is fanning the fear that there is a lot more tightening needed to be done in order to reduce inflation. The Chinese government is worried that resentment over its inability to keep inflation under control could lead to widespread protests like those spreading across North Africa and the Middle East. In order to prevent such protests in China, the government has taken a number of measures to cool China's booming economy. These measures include raising interest rates, increasing down payment requirements, raising the share of deposits that banks are required to hold in reserve, introducing property taxes used to cut into the profit of property sellers and a nearly $200 billion plan to build and renovate of 10 million low cost homes. However, investors worry that rising oil prices prices may reduce the effectiveness of the Chinese government's efforts and that this may lead to a continued effort to tighten monetary policy. These concerns led to the SSE Composite Index of Chinese stocks falling 45.45 points, or 1.51%, during the Monday trading session to 2,965.06. The market volatility caused by inflationary fears provides investors with a number of investment opportunities. The iShares FTSE China 25 Index Fund FXI could benefit if inflationary concerns begin to fall. If inflation continues to climb, the Chinese government is likely to continue tightening monetary policy and the ProShares Short FTSE China 25 YXI could see a significant increase in share price. The Global X China Materials ETF CHIM is an ETF that may be especially sensitive to the movements of Chinese inflation rates. CNOOC Limited CEO is a Chinese company in the business of the exploration, development, production and sale of oil, natural gas, and other petroleum products. This is one Chinese company that should see its stock price continue to rise higher if unrest in the Middle East continues to push oil prices higher.