We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
China's economic recovery has been faltering amid weak domestic and external demand, producer deflation and rising trade tensions with the United States. According to official data, profits at China’s industrial firms have plummeted in the first four months of 2023, falling 20.6% year-on-year.
This continuous slump was experienced across the board, with industrial firms witnessing an 18.2% drop in profit in April alone. Firms are grappling with shrinking demand, both domestically and in the country’s key export markets.
Pressure on Industrial Giants
Even China’s tech titan, Lenovo, is feeling the squeeze. Despite being the world's largest PC maker, the company reported that quarterly revenue and profit plunged in the first quarter, leading to a workforce cut of around 8% to 9%. On a similar note, the steel industry is feeling the pinch with steel reinforcing bar prices hitting a three-year low, and only a third of the country’s mills are currently operating profitably.
Foreign and Private-Sector Firms Feeling the Burn
Private-sector firms experienced a 22.5% profit plunge from January to April, with foreign firms seeing profits slide 16.2% during the same period. With 27 of 41 major industrial sectors seeing a decline in profits, the ferrous metal smelting and rolling processing industry suffered the worst slump at 99.4%.
Growth Forecasts Trimmed
The Chinese economy advanced 4.5% year over year in Q1 of 2023, accelerating from a 2.9% growth in Q4 and topping market estimates of 4%. It was the strongest pace of expansion since Q1 of 2022, amid efforts from Beijing to spur the post-pandemic recovery.
Despite this growth, the recovery is considered to be on shaky ground. The evidence is compelling enough that investment banks have lowered their 2023 China growth forecasts, following a disappointing April, per a CNBC article.
This downward revision is despite the World Bank and others having raised their China growth estimates for 2023 earlier, based on promising signs of recovery. China set a modest GDP target of around 5% for 2023. Last year, the economy added 3%, missing the government's goal of about 5.5%.
Should You Short China With ETFs?
One way to bet against China's economic prospects is to short China with ETFs. By shorting China with ETFs, investors can profit from the decline in the value of these funds as Chinese stocks fall. China’s debt-laden real estate sector has also been grappling with pressures as sales remained subdued. The government is also not letting developers to offer steep price cuts in case such price cuts put pressure on the baking system.
ETFs in Focus
Against this backdrop, below we highlight a few inverse China ETFs that gained past month.
Direxion Daily FTSE China Bear 3X Shares (YANG - Free Report) – Up 13.7% Past Month
AXS Short China Internet ETF – Up 8.5%
ProShares Short FTSE China 50 (YXI - Free Report) – Up 5.1%
Bottom Line
However, one must not ignore the complexity of the global economic environment and the significant role that China continues to play in the global economy. Hence, any decision to short China with ETFs should be made after a thorough analysis of market conditions, global economic indicators, and individual investment strategies.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Time to Short China With ETFs on Feeble Recovery?
China's economic recovery has been faltering amid weak domestic and external demand, producer deflation and rising trade tensions with the United States. According to official data, profits at China’s industrial firms have plummeted in the first four months of 2023, falling 20.6% year-on-year.
This continuous slump was experienced across the board, with industrial firms witnessing an 18.2% drop in profit in April alone. Firms are grappling with shrinking demand, both domestically and in the country’s key export markets.
Pressure on Industrial Giants
Even China’s tech titan, Lenovo, is feeling the squeeze. Despite being the world's largest PC maker, the company reported that quarterly revenue and profit plunged in the first quarter, leading to a workforce cut of around 8% to 9%. On a similar note, the steel industry is feeling the pinch with steel reinforcing bar prices hitting a three-year low, and only a third of the country’s mills are currently operating profitably.
Foreign and Private-Sector Firms Feeling the Burn
Private-sector firms experienced a 22.5% profit plunge from January to April, with foreign firms seeing profits slide 16.2% during the same period. With 27 of 41 major industrial sectors seeing a decline in profits, the ferrous metal smelting and rolling processing industry suffered the worst slump at 99.4%.
Growth Forecasts Trimmed
The Chinese economy advanced 4.5% year over year in Q1 of 2023, accelerating from a 2.9% growth in Q4 and topping market estimates of 4%. It was the strongest pace of expansion since Q1 of 2022, amid efforts from Beijing to spur the post-pandemic recovery.
Despite this growth, the recovery is considered to be on shaky ground. The evidence is compelling enough that investment banks have lowered their 2023 China growth forecasts, following a disappointing April, per a CNBC article.
This downward revision is despite the World Bank and others having raised their China growth estimates for 2023 earlier, based on promising signs of recovery. China set a modest GDP target of around 5% for 2023. Last year, the economy added 3%, missing the government's goal of about 5.5%.
Should You Short China With ETFs?
One way to bet against China's economic prospects is to short China with ETFs. By shorting China with ETFs, investors can profit from the decline in the value of these funds as Chinese stocks fall. China’s debt-laden real estate sector has also been grappling with pressures as sales remained subdued. The government is also not letting developers to offer steep price cuts in case such price cuts put pressure on the baking system.
ETFs in Focus
Against this backdrop, below we highlight a few inverse China ETFs that gained past month.
Direxion Daily FTSE China Bear 3X Shares (YANG - Free Report) – Up 13.7% Past Month
AXS Short China Internet ETF – Up 8.5%
ProShares Short FTSE China 50 (YXI - Free Report) – Up 5.1%
Bottom Line
However, one must not ignore the complexity of the global economic environment and the significant role that China continues to play in the global economy. Hence, any decision to short China with ETFs should be made after a thorough analysis of market conditions, global economic indicators, and individual investment strategies.