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China Disappoints With Sluggish Numbers: 5 ETFs in Focus

Sweta Jaiswal, FRM

China’s economy seems to be in a tumultuous phase. On one hand, the escalating trade spat with United States and on the other, economic indicators like retail sales, investment growth and industrial production for April disappointed investors. In fact, the Shanghai Composite Index has lost around 9% since Apr 1 (as of May 14).

Reacting to the numbers, Australian dollar, which is considered the liquid proxy for China plays, showed some weakness. As a result, Australian dollar hit a four-and-a-half month low of 0.6924 for every USD. China’s presentation of such disappointing numbers after a better-than-expected first quarter irked investors (read: China's Economy Beats Growth Forecasts: 5 ETFs in Focus).

Retail Sales Growth Slides to About 16-Year Low

The National Bureau of Statistics (NBS) data reflected that retail sales grew at the slowest pace since May 2003, only 7.2% year over year. The figure also disappoints when compared with the March figure of 8.7% and estimates of 8.6%. Notably, per a Reuters’ article, clothing sales also declined. In fact, it was the first decline since 2009. A drop in consumer spending may be cited as a reason for the disappointing retail sale numbers ( read: China's Retaliation Puts These ETFs and Stocks in Focus).

Industrial Output Growth Slumps

Amid intensifying trade disputes, China’s industrial output growth for April has been disappointing. The Chinese economy saw a 5.4% year-over-year rise in industrial output in comparison with 8.5% growth in March and consensus estimate of 6.5% rise. Notably, year-over-year output growth was sluggish for manufacturing at 5.3% in April as compared with 9% in March. With a 2.9% year-over-year output growth in April in comparison with 4.6% in March, China saw softness in mining as well (read: ETF Winners & Losers As China Retaliates).

Going by the industry, the Chinese economy saw weakness in output for transport equipment, machinery, non-metal minerals, general equipment, chemicals and textile production. In fact, along with a 14.6% decline in automobile sales in April, motor vehicle production fell roughly 16%.

Shrinking Investments

Fixed-asset investment and private sector fixed-asset investment growth was also disappointing. Notably, the private sector is responsible for creating majority of the jobs in China. A slowdown in private sector investment shows weakness in spite of the central bank’s efforts to increase bank loans and total outstanding credit. Meanwhile, infrastructure expenditures growth was flat at 4.4% year over year for the first four months of 2019.

What Lies Ahead?

‘Attack and Retaliation’ has been landscaping the Sino-US trade war scenes. In this scenario, the latest comment from Trump where softness can be felt in his rhetoric, has imbibed new hopes for truce between the two largest economies.

Moreover, analysts are of the opinion that China will resort to a relaxed monetary policy with tax cuts and subsidies especially for the average-income-group category. China has also been relaxing the restrictions on housing transactions and mortgages for the past two years.

In view of the efforts by the country to stabilize its economy and hopes of settling on a trade pact, the Chinese economy might rebound and achieve its targeted 6-6.5% economic growth in 2019.

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like Reality Shares Nasdaq NexGen Economy China ETF BCNA, Global X MSCI China Communication Services ETF CHIC, CSOP FTSE China A50 ETF AFTY, KraneShares CICC China Leaders 100 Index ETF KFYP and Invesco Golden Dragon China ETF PGJ.

BCNA

This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the Reality Shares Nasdaq Blockchain China Index. It comprises 40 holdings. The fund’s AUM is $2.2 million and expense ratio is 0.78%. The fund has returned 19.5% year to date (read: Top and Flop ETFs So Far in Q2).

CHIC

This fund tracks the MSCI China Communication Services 10/50 Index. It comprises 26 holdings. The fund’s AUM is $24.8 million and expense ratio is 0.65%. It has returned 8.7% year to date (read: Top-Performing Country ETFs of April).

AFTY

This fund tracks the FTSE China A50 Net Total Return Index. It comprises 50 holdings. The fund’s AUM is $10.6 million and expense ratio is 0.70%. The fund has returned 23.7% year to date.

KFYP

This fund tracks the performance of the CSI CICC Select 100 Index. It comprises 91 holdings. The fund’s AUM is $4 million and expense ratio is 0.71%. The fund has returned 20.2% year to date (read: China's 2018 GDP Growth 28-Year Low: ETFs That Lost the Most).

PGJ

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China. It holds a basket of 64 stocks. The product has AUM of $192 million and charges 70 bps in annual fees. The fund has returned 20.9% year to date (read: A Spread of Top-Ranked ETFs That Crushed the Market in Q1).   

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Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
CSOP FTSE China A50 ETF (AFTY): ETF Research Reports
 
Global X MSCI China Communication Services ETF (CHIC): ETF Research Reports
 
Reality Shares NASDAQ NexGen Economy China ETF (BCNA): ETF Research Reports
 
KraneShares CICC China Leaders 100 Index ETF (KFYP): ETF Research Reports
 
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