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China's 2018 GDP Growth 28-Year Low: ETFs That Lost the Most

Sanghamitra Saha
Donaldson's (DCI) earnings in third-quarter fiscal 2019 lag estimates but improve year over year on sales growth and lower taxes. It lowers projections for fiscal 2019.

China’s investment scenario was troubled in 2018, mainly due to trade war tensions with the United States. Fourth-quarter gross domestic product (GDP) grew at the weakest clip since the financial crisis of 2009, slipping to 6.4% from 6.5% in Q3.

Overall, the economy’s 2018 growth rate of 6.6% was a 28-year low. Weak investment and wavering consumer confidence weighed on the economy. China’s factory activity contracted in last December for the first time in more than two years.

The year 2018 marked the start of trade tensions between the United States and China. It started in March after Trump ordered duties on steel and aluminum imports followed by an announcement to levy up to $60 billion of import duties on Chinese goods.

To date, the United States has slapped tariffs of 10% on $250 billion worth of Chinese products, and has warned tariffs on US$267 billion more. Meanwhile, China has set tariffs on $110 billion worth of U.S. goods (read: China's Likely Retaliation to US Tariffs & Its Impact on ETFs).

However, the countries are confronted with the risks of a trade war. Per the Wall Street Journal, the United States is considering the lifting of some or all U.S. tariffs on Chinese goods in order to facilitate trade talks.

Both the parties are currently in the middle of a 90-day partial trade truce. Tariffs will jump to 25% post Mar 1, if the duo fails to reach a trade deal. The Shanghai composite and main Shenzhen index were down more than 20 and 30%, respectively, in 2018, sending Chinese stocks to the worst performers’ club on a global basis.

Stimulus Ahead?

Economists are of the view that if the Chinese slowdown deepens, the government may resort to more intense easing, including relaxing property purchasing curbs in the biggest cities. China’s central bank cut its reserve requirement ratio (RRR) several times past year, to release about $116 billion for new lending and boost the economy.

The latest cut in RRR has been in 2019 which takes RRR to 14.5% for large institutions and 12.5% for smaller banks. The cuts will be put into effect on Jan 15 and Jan 25, respectively (read: China Cuts Rate for Fourth Time: ETFs in Focus).

Economists also believe that the government may cut taxes and boost spending on infrastructure amid expectations that the budget deficit ratio could be raised to 3% in 2019 from 2.6% last year, as quoted on Reuters.

China ETFs Lost the Most

Against this backdrop, we highlight a few China ETFs that lost the maximum in the past year (as of Jan 18, 2019).

VanEck Vectors ChinaAMC SME-ChiNext ETF CNXT — Down 36.9%

Xtrackers Harvest CSI 500 China-A Shares Small Cap Fund ASHS — 33.4%

KraneShares CSI China Internet ETF KWEB — 33.2%

Invesco China Technology ETF CQQQ — 32.2%

KraneShares CSI China Five Year Plan ETF KFYP — 30.6%

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VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT): ETF Research Reports
 
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