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China ETFs Struggle After HSBC Pares GDP Estimate


Already under pressure due to a raft of mediocre economic data and investor’s fleeing emerging markets, ETFs that track China are getting dinged again Wednesday after HSBC pared its 2013 and 2014 GDP estimates on the world’s second-largest economy.

The iShares FTSE China 25 Index Fund (FXI) is down almost 1% after HSBC slashed its 2013 and 2014 Chinese GDP growth forecasts to 7.4% from 8.2% and 8.4%, respectively. FXI, the largest China ETF by assets, is down nearly 11% in the past month. FXI is off nearly 5% since the start of June as a slew of disappointing data points, including HSBC’s unofficial manufacturing PMI report, have been absorbed. That report showed a decline to 49.2 in May from 50.4 in April. Readings below 50 indicate contraction. [June Could be Another Bad Month for China ETFs ]

The consensus estimate for Chinese GDP growth this year is 7.8% and growth of below 8% could added to deflation, said HSBC. The bank also pared its consumer price inflation view to 2.5% year-on-year from 3.1% and the 2014 CPI view to 2.6% from 2.7%, reports Barbara Kollmeyer for MarketWatch.

Investors hoping for the Peoples Bank of China to rush to the aid of the economy with stimulus measures or interest rate cuts could be disappointed. May housing data indicate property values rose in 69 of 70 major Chinese cities last month, which could take interest rate reductions off the table as the Chinese government continues to fight against a housing bubble. Speculation has risen since that report was released earlier this week that the government will enact new lending curbs to prevent the market from overheating. The Guggenheim China Real Estate ETF (TAO) is down more than 10% in the past month. TAO is down 1.2% today.

HSBC sees previous initiatives as taking time to move the Chinese economy to spur growth while noting in the near term, “some reform initiatives will actually be negative for demand, implying that growth will slow before regaining momentum in 2015,” MarketWatch reported, citing the bank.

Putting into context just how bad of a year it has been for some China ETFs, FXI is the second-worst performer among the four major single-country funds tracking BRIC countries. Only the iShares MSCI Brazil Index Fund (EWZ) has been worse. [It's Getting Pricey to Bet Against China ETFs]

iShares FTSE China 25 Index Fund


ETF Trends editorial team contributed to this report.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.