Earlier in the year, confidence in the world’s second largest economy was relatively low. Expectations of interest rate cuts by the People’s Bank of China before the end of the year to boost growth remained high. However, the better-than-expected data released in August indicates that such measures may not be required. The economy seems to be witnessing positive changes with growth opportunities. The August data also hint at stronger growth in the third quarter.
What the Numbers Indicate
China’s manufacturing PMI for August stood at 50.4, up from 49.9 recorded in July. In addition to the month-over-month increase, the figure above 50 indicates economic expansion. The non-manufacturing PMI also remained above the threshold level at 53.5 in August. The service industry PMI in the month rose 0.1 from July to 52.7.
The industrial output for China grew at a faster rate in August than it has in the last five months at 6.3%. In the first seven months, industrial profits increased 6.9% year over year, up 0.7% from the first six months. The steel industry performed particularly well with a reduction in production raising prices.
Investments in the economy also grew in the first seven months of the year. The investments in fixed assets grew 8.1% year over year, with the contribution from state holding enterprises increased 21.4%. Investments in infrastructure were also up 19.7% in the first seven months of the year, up 0.1% from the first six months of the year. However, the public sector spending outpaced that of the private sector.
The consumer price index (CPI) was also up 1.3% year on year in August. Moreover, retail sales increased at a year-over-year nominal growth rate of 10.2% in the month.
Recent data also indicate rise in domestic demand as imports in the country increased for the first time since 2014. The economic indicators point toward a stable and growing economy. Although the economy might not be performing as well as it is capable of, the apprehensions at the beginning of the year can well be dismissed.
Let’s take a look at three ETFs based on Chinese equities to invest in:
ETFs in Focus
iShares China Large-Cap ETF (FXI - ETF report)
The fund is one of the most popular investment choices for exposure to the Chinese equity market, with high liquidity. However, it mainly consists of large-cap companies and is better for short -term investors. The fund has over $4 billion in assets under management at an expense ratio of 0.73%. The top 10 holdings of the fund, accounting for 57.83%, primarily consist of companies in the financial and energy sector. As of September 12, the fund provided a year-to-date return of 9.26%.
iShares MSCI China ETF (MCHI - ETF report)
The fund is exposed mainly to large-cap companies in China but has a more diversified holding. It is a prudent choice for long as well as short term investments. It has over $2.51 billion assets under management at an expense ratio of 0.62%. The top 10 holdings of the company represent 54.83% of the fund. As of September 12, the fund provided a year-to-date return of 9.17%.
SPDR S&P China ETF (GXC - ETF report)
The fund is exposed mainly to large-cap companies in China but has a larger number of holdings compared to other similar funds, increasing diversity. It has almost $0.8 billion assets under management at a gross expense ratio of 0.59%. The top 10 holdings of the company represent 45.74% of the fund. As of September 12, the fund provided a year-to-date return of 8.9%.
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