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Will China ETFs Suffer as Coronavirus Dents Factory Output?

Sweta Jaiswal, FRM

The coronavirus impact can be seen on China’s latest economic data. Per, the National Bureau of Statistics, the world’s second-largest economy’s official Purchasing Managers' Index (PMI) came in at 35.7 in February in comparison to 50.0 in January. The country’s manufacturing activity has apparently slumped to the lowest level since it had begun recording the figures in 2005. The metric also compares unfavorably with analysts’ forecast (per a Bloomberg’s poll) of a reading of 45.0. Notably, a reading below 50 indicates contraction in activity.

The gauge of sentiment in the services and construction sectors, China’s non-manufacturing PMI also declined to 29.6 in February from 54.1 in January. Here as well, the metric slumped to the lowest level ever recorded. The figure also lags analysts’ forecast (per a Bloomberg’s poll) of a reading of 50.5 (read: Can China ETFs Survive the Coronavirus Onslaught?).

Going on, China’s export order sub-index also slipped to 28.7 from 48.7 in January. Meanwhile, the country’s imports slumped to 31.9 in February from 49.0 in January. Moreover, the manufacturing production sub-index fell to 27.8 from 51.3. There was a decline in new orders as well, from 51.4 in January to 29.3 last month. Meanwhile, the employment levels were disappointing, declining 15.7 points from January to 31.8 in February. The current reading levels are indicative of the problems being faced by Chinese manufacturers, ranging from higher costs due to disturbed global supply chains to logistics. Finally, the composite PMI dropped to 28.9 from January’s 53.0.

Some analysts are of the opinion that if the virus is not contained in March, China’s economy might enter a recession. Notably, analysts at Nomura expect China’s first-quarter growth of 2% year over year, while Capital Economics projects a year-over-year contraction in the quarter (read: Earnings and Coronavirus Impact: 5 Best ETF Charts).

China’s government has been confident and has claimed that the adverse impacts from the coronavirus epidemic will be short-term only and the nation will be able to meet the economic and social goals for 2020 that it had set earlier. On the contrary, commenting on the current situation, Liang Zhonghua, chief macro analyst at the Research Institute of Zhongtai Securities, has said, “looking forward, there is still a lot of economic loss that can never be remedied, even if the epidemic has passed. The mid and long-term impact of the epidemic cannot be ignored.”

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF FXI, iShares MSCI China ETF MCHI, Xtrackers Harvest CSI 300 China A-Shares ETF ASHR and Invesco Golden Dragon China ETF PGJ.

FXI — down 9.4% year to date

This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the FTSE China 50 Index. It comprises 50 holdings. The fund’s AUM is $4.40 billion and expense ratio is 0.74% (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

MCHI — down 6.2%

This fund tracks the MSCI China Index. It comprises 605 holdings. The fund’s AUM is $4.79 billion and expense ratio is 0.59% (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).

ASHR — down 5.6%

This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.69 billion and expense ratio is 0.65%.

PGJ — down 8.1%

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China. It holds a basket of 66 stocks. The product has AUM of $181.5 million and charges 70 bps in annual fees.

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iShares MSCI China ETF (MCHI): ETF Research Reports
 
iShares China Large-Cap ETF (FXI): ETF Research Reports
 
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): ETF Research Reports
 
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
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