China ETFs Could Slow After Weaker Provincial Outlooks

With seven Chinese provinces set to cut back growth targets for the year, China country-specific exchange traded funds may have a hard time rebounding after a dismal year.

The three largest China ETFs, iShares China Large-Cap ETF (FXI) , iShares MSCI China ETF (MCHI) and SPDR S&P China ETF (GXC) , underperformed over the last year, with FXI falling 10.4%, MCHI declining 5.1% and GXC staying relatively flat at 0.4%.

Seven Chinese provinces are lowering growth targets for 2014 as the government shifts over to sustainable growth from an export-oriented growth model, Bloomberg reports.

For example, according to the official Heibei Daily, the Heibi province, which borders Beijing, set an 8% growth goal due to “unprecedented pressure” from air-pollution controls, compared to last year’s target of 9%.

President Xi Jinping is putting an emphasis on environmental protection and containing debt on top of short-term economic growth objectives.

“We are facing increasingly severe difficulties and contradictions,” Hebei Governor Zhang Qingwei said in Hebei Daily.

Additionally, Guizhou projects an expansion of at least 12.5% in 2014, compared to 14% in 2013. Guangxi set a 10% target, down from 11% last year. Fujian expects 10.5% growth, compared to 11% target in 2013. Gansu sees 11% growth this year, versus last year’s target of 12%. Ningxia set a 10% target, falling short of its 12% goal last year.

Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole CIB, points out that the latest regional targets indicate a national goal of 7%, down from 7.5% in 2013. [DB Lowers Outlook on China; ETFs Could be Pinched]

China has 22 provinces, five autonomous regions, four municipalities and two special administrative regions.

The iShares FXI ETF is the the largest China-related ETF. FXI tracks a group of large-cap Chinese companies, which are listed on Hong Kong and have significant exposure to state-owned companies. The iShares MCHI ETF includes a more diverse holding of 138 large- and mid-cap Chinese companies, compared to FXI’s 26 large-cap holdings. The SPDR GXC ETF follows a broader exposure to Chinese equities, with 251 holdings.

iShares China Large-Cap ETF

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