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What Lies Ahead for China ETFs in the Year of Tiger?
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Over the years, China’s economy has become a key gauge of global economic and investment health. China’s $13 trillion economy, second in size just after the United States, makes up about a third of global growth each year. So, if China’s debt-ridden economy’s growth slows down and stocks fall on regulatory stringency, which actually has been the case of late, the global economy will have to pay the price for it, in some way or the other.
The key China ETFs, including iShares China Large-Cap ETF (FXI - Free Report) , SPDR S&P China ETF (GXC - Free Report) andiShares MSCI China ETF (MCHI - Free Report) , have lost 27%, 30% and 32% past year. KraneShares CSI China Internet ETF (KWEB) has slumped as much as 60% past year.China ETFs are still downbeat this year, with products losing in the range of 1% to 17%.
Against this backdrop, China is stepping into its Lunar New Year 2022 — the Year of the Tiger — on Feb 1. Let’s find out what’s in store for China ETFs this New Year.
Recap of the Ox Year
The year was completely downbeat for China investing as the region’s stocks suffered heavily due to the regulatory crackdown on various sectors, with technology receiving special wrath. The COVID-19 pandemic has been another wall of worry. China’s government revealed a five-year plan in August 2021 outlining tighter regulation for most of its economy, with areas including national security, technology and monopolies being more scrutinized.
China’s economy expanded 4.0% year over year in Q4 of 2021, easing from a 4.9% expansion in the previous period but exceeding market consensus of 3.6%, per tradingeconomics. It marked the slowest pace of expansion since Q2 of 2020, amid several headwinds, including a crash in the property market led by the real estate bigwig Evergrande’s debt default.
Overall, in 2021, the Chinese economy grew 8.1%, representing the fastest expansion in nearly a decade, topping the government's target of above 6% and following revised 2.2% growth in 2020. Consumption expenditure made up 65.4% of the 2021 GDP growth compared with 54.3% in 2020, breezing past the average level of 60% from 2013 to 2019 but was still lower than in developed economies.
What Lies Ahead in the Year of the Tiger?
Beijing’s ongoing regulatory crackdown on technology could last up to 30 years, predicted GFM Asset Management’s Tariq Dennison, as quoted on CNBC. Still, long-term investors would love the space. New regulations are “more likely to entrench these companies and to give them wider moats,” according to Dennison.
Citigroup recently added its asset allocation to China and Japan, said Ken Peng of Citi Private Bank, published on CNBC. According to Peng, China is likely to see easing for both monetary and fiscal policy. As against the developed economies that are considering tightening of policies, China has slashed interest rates recently to boost its economy. This policy differential may steer investors toward China, which probably offers value now.
We believe the period of bloodbath in China ETFs is over now, though the market still has great uncertainties and thus has not bottomed out yet. China’s zero-Covid policy may hurt the GDP growth in the coming quarters as the manufacturing sector would be broken, casting a pall over the global supply chain.
Covid cases have been reported in the key port cities as well as the industrial hub of Xi’an, leading to lockdowns and curbs in the largest port hubs. Despite having a relatively low number of cases compared to many other countries, Beijing has been showing a stringent approach.
Overall, the consumer sector should do better due to its non-cyclical nature. Uncertainty over the tech sector is not over yet. A diversified approach is better when investing in China's equity ETFs while bonds have been faring better due to lower rates.
ETFs in Focus
Against this backdrop, we would like to highlight a few China ETFs that have been the steadiest ahead of the New Year.
KraneShares Bloomberg China Bond Inclusion Index ETF – Up 0.6% past week
Image: Bigstock
What Lies Ahead for China ETFs in the Year of Tiger?
Over the years, China’s economy has become a key gauge of global economic and investment health. China’s $13 trillion economy, second in size just after the United States, makes up about a third of global growth each year. So, if China’s debt-ridden economy’s growth slows down and stocks fall on regulatory stringency, which actually has been the case of late, the global economy will have to pay the price for it, in some way or the other.
The key China ETFs, including iShares China Large-Cap ETF (FXI - Free Report) , SPDR S&P China ETF (GXC - Free Report) andiShares MSCI China ETF (MCHI - Free Report) , have lost 27%, 30% and 32% past year. KraneShares CSI China Internet ETF (KWEB) has slumped as much as 60% past year.China ETFs are still downbeat this year, with products losing in the range of 1% to 17%.
Against this backdrop, China is stepping into its Lunar New Year 2022 — the Year of the Tiger — on Feb 1. Let’s find out what’s in store for China ETFs this New Year.
Recap of the Ox Year
The year was completely downbeat for China investing as the region’s stocks suffered heavily due to the regulatory crackdown on various sectors, with technology receiving special wrath. The COVID-19 pandemic has been another wall of worry. China’s government revealed a five-year plan in August 2021 outlining tighter regulation for most of its economy, with areas including national security, technology and monopolies being more scrutinized.
China’s economy expanded 4.0% year over year in Q4 of 2021, easing from a 4.9% expansion in the previous period but exceeding market consensus of 3.6%, per tradingeconomics. It marked the slowest pace of expansion since Q2 of 2020, amid several headwinds, including a crash in the property market led by the real estate bigwig Evergrande’s debt default.
Overall, in 2021, the Chinese economy grew 8.1%, representing the fastest expansion in nearly a decade, topping the government's target of above 6% and following revised 2.2% growth in 2020. Consumption expenditure made up 65.4% of the 2021 GDP growth compared with 54.3% in 2020, breezing past the average level of 60% from 2013 to 2019 but was still lower than in developed economies.
What Lies Ahead in the Year of the Tiger?
Beijing’s ongoing regulatory crackdown on technology could last up to 30 years, predicted GFM Asset Management’s Tariq Dennison, as quoted on CNBC. Still, long-term investors would love the space. New regulations are “more likely to entrench these companies and to give them wider moats,” according to Dennison.
Citigroup recently added its asset allocation to China and Japan, said Ken Peng of Citi Private Bank, published on CNBC. According to Peng, China is likely to see easing for both monetary and fiscal policy. As against the developed economies that are considering tightening of policies, China has slashed interest rates recently to boost its economy. This policy differential may steer investors toward China, which probably offers value now.
We believe the period of bloodbath in China ETFs is over now, though the market still has great uncertainties and thus has not bottomed out yet. China’s zero-Covid policy may hurt the GDP growth in the coming quarters as the manufacturing sector would be broken, casting a pall over the global supply chain.
Covid cases have been reported in the key port cities as well as the industrial hub of Xi’an, leading to lockdowns and curbs in the largest port hubs. Despite having a relatively low number of cases compared to many other countries, Beijing has been showing a stringent approach.
Overall, the consumer sector should do better due to its non-cyclical nature. Uncertainty over the tech sector is not over yet. A diversified approach is better when investing in China's equity ETFs while bonds have been faring better due to lower rates.
ETFs in Focus
Against this backdrop, we would like to highlight a few China ETFs that have been the steadiest ahead of the New Year.
KraneShares Bloomberg China Bond Inclusion Index ETF – Up 0.6% past week
VanEck China Bond ETF (CBON - Free Report) – Down 0.1%
First Trust China AlphaDEX Fund (FCA - Free Report) – Down 0.5%
Global X MSCI China Consumer Staples ETF – Down 1.3%
Global X MSCI China Financials ETF – Down 3.1%
KraneShares CICC China Consumer Leaders Index ETF – Down 3.7%
Pacer CSOP FTSE China A50 ETF(AFTY) – Down 3.8%