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ETFs in Focus as Tariffs Hit Chinese Exports

Sweta Jaiswal, FRM

China’s export data for September lagged analysts’ expectations. The numbers came out at a time when the two largest economies have agreed on a partial accord after Trump’s meeting with Chinese Vice Premier Liu He on Oct 11.

Chinese exports fell 3.2% year over year in September in comparison to analysts’ expectations of a decline of 3%, per a Reuters poll. The export levels in September were weaker when compared to a 1% drop in August. In fact, it was the steepest decline in export levels since February 2019. Waning demand due to slowing global economic growth, trade war tensions and ‘front-loading’ impact might have caused the drop in export levels (read: Chip ETFs in Focus as Trump Blacklists More Chinese Tech Firms).

Meanwhile, China’s import levels in September declined 8.5% year over year in comparison to analysts’ expectations of a 5.2% drop. The imports were weaker in September when compared with a 5.6% year-over-year fall in August’s level. China’s domestic demand has been weak in spite of measures taken by the Chinese government.

However, China reported a trade surplus of $39.65 billion in September against analysts’ projections of a surplus of $33.3 billion.

What’s Causing the Disappointment?

Trade war tensions between the United States and China have been affecting China’s economy. Notably, China’s exports to the United States fell 10.7% year over year in September in dollar terms in January-September 2019. Moreover, Chinese imports from the United States contracted 26.4% year over year. Also, China’s trade surplus with the United States came in at $25.88 billion in September against $26.96 billion in August (read: Time to Buy Global Low-Volatility ETFs?).

Weakening domestic market on softening consumption and investment levels along with disappointing global commodity prices have been causing the slump in China’s import levels.

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

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: ETFs in Focus as China's Economic Slowdown Persists).

MCHI

This fund tracks the MSCI China Index. It comprises 463 holdings. The fund’s AUM is $3.78 billion and expense ratio is 0.59% (read: ETF Winners as Sino-US Trade War Tensions Ebb).

ASHR

This fund tracks the CSI 300 Index. It comprises 301 holdings. The fund’s AUM is $1.71 billion and expense ratio is 0.66% (read: Should You Buy China ETFs Now?).

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 66 stocks. The product has AUM of $175.6 million and charges 70 bps in annual fees (read: Dump Slowdown Fear, Bet on These China ETFs).

Conclusion

The trade war made quite an impact on China’s economy as is evident from falling export and imports levels, decreasing jobs, declining business and consumer confidence, and shrinking investments. Moreover, analysts are estimating China’s economic growth in the third quarter to be weaker than the near 30-year low of 6.2% in April-June. However, the recently agreed upon partial accord on trade dispute might bring some relief to the Chinese economy.

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