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China's Discouraging Figures Hit Investors: 5 ETFs in Focus

Sweta Jaiswal, FRM

China’s economy is witnessing a tumultuous phase. On one hand, the country is grappled with the ongoing trade spat with the United States while on the other, economic growth for the second quarter declined to its slowest pace in almost three decades.

The world’s second largest economy grew at 6.2% between April and June in comparison to 6.3% median prediction from a poll of 14 economists conducted by The Wall Street Journal. The GDP number also lagged behind the 6.4% growth in the first quarter of 2019. However, the economic growth figure lies within Beijing’s target growth rate range of 6-6.5% for 2019.

Factors Behind This Downside

Trade pressures heightened since Trump dealt fresh attacks in the latest round of the trade war. The U.S. President increased tariff to 25% from 10% on Chinese goods worth $200 billion effective May 10 midnight, and has threatened to levy another 25% tariff on an additional $325 billion of Chinese goods. In retaliation, China announced imposition of as much as 25% tariff on U.S. imports worth $60 billion effective Jun 1 onward (read: US-China Truce Talks Begin: ETFs to Shine).

The country’s export and import numbers are also dismal. On one hand, imports slipped to worse-than-expected levels in June while on the other, export data was sluggish. Notably, exports fell by 1.3% in June from the year-ago period while imports decreased 7.3%. Slackening global economic growth also affected the trade numbers for the Chinese economy. Furthermore, factories were observed to be on a job-cut spree.

China has also been seeing a dip in pork output due to African swine fever outbreak. Moreover, the country saw easing growth in new home prices to 10.3% on an annual basis in June from 10.7% in May.

Is the Scenario Very Bleak?

Fixed-asset investment growth of 5.8% year-over-year for the first half of 2019 surpassed the 5.5% estimate. It also exceeded 5.6% growth witnessed in the first five months of the year. Real-estate investment also gained momentum in June       .

Moreover, strength in the industrial output saw a 6.3% rise year over year, outpacing the 5.2% estimate. This reflected a sequential increase from May’s 17-year low figure as well. Also, the National Bureau of Statistics (NBS) data reported a record rise in crude oil, steel and coal output in June.

Retail sales also improved by 9.8% in June comparison to May’s tally of 8.6% and April’s 7.2% growth. Strength in the cosmetics, automotive and home appliances sectors drove this upside.

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, KraneShares CSI China Internet ETF KWEBand Invesco Golden Dragon China ETF PGJ.

FXI

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 $5.48 billion and expense ratio is 0.74%. The fund has returned 7.8% year to date (read: Bet on BlackRock's Megatrends With These ETFs).

MCHI

This fund tracks the MSCI China Index. It comprises 392 holdings. The fund’s AUM is $4.29 billion and expense ratio is 0.59%. It has returned 12% year to date (read: ETFs to Tap on Alibaba's Revenue Growth in Q4).

ASHR

This fund tracks the CSI 300 Index. It comprises 310 holdings. The fund’s AUM is $1.68 billion and expense ratio is 0.66%. The fund has returned 26.6% year to date.

KWEB

This fund tracks the performance of the CSI Overseas China Internet Index. It comprises 43 holdings. The fund’s AUM is $1.57 billion and expense ratio is 0.70%. The fund has returned 15.2% year to date (read: 5 Tech ETFs Losing the Most on Huawei Ban: What's Ahead?).

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 68 stocks. The product has AUM of $193.5 million and charges 70 bps in annual fees. The fund has returned 17.2% year to date (read: A Spread of Top-Ranked ETFs That Crushed the Market in Q1).

Bottom Line

China is making an all-out effort to keep the growth momentum steady in the economy. However, analysts are growing apprehensive about a waning demand, thanks to the slump in Chinese imports. Also, all hopes are pinned on the ongoing Sino-US truce talks, although no immediate solution to this trade dispute is in sight.