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China's Economy Beats Growth Forecasts: 5 ETFs in Focus
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While speculations of a global economic slowdown are making the rounds, China has provided some respite to investors by beating first-quarter growth estimates. Despite odds like weak global demand, trade tensions with the United States and debt-related issues, the Chinese economy expanded 6.4% in the quarter, surpassing economists’ forecasts of a 6.3% rise. However, first-quarter GDP was in line with the fourth-quarter 2018 number.
Rejoicing on the news, investors chose to grab Australian dollar, which is considered the liquid proxy for China plays. As a result, Australian dollar rose 0.3% to a two-month high of $0.7206.
Factors Behind the Impressive Numbers
Analysts believe that policymakers in China have done a good job in supporting the economy. China’s economy witnessed a rise in bank loans and total outstanding credit. Fresh credit was released in the economy and the reserves required to be kept at banks were lowered. Moreover, government supported the economy by increasing investments made by state-owned firms to 6.7%. Additionally, recently released credit report data reflected a 10.7% rise in outstanding total social financing in March.
The restrictions on housing transactions and mortgages for the past two years have also been relaxed. A minimum of 50 cities are speculated to have relaxed the restrictions on residency permits this year. The move intended to provide some support to the local real estate markets. In fact, there was a 10.6% rise in average of the housing prices in 70 big Chinese cities in March. This also happens to be the fastest gain since April 2017.
The Chinese policy makers are also aggressively working on their taxation policies. Last month, the Chinese government announced plans to implement $298 billion deductions in taxes and company fees. It announced a cut in the value-added tax (VAT) for the manufacturing sector to 13% from 16%, and VAT for the transport and construction sectors to 9% from 10%.
Other economic indicators like infrastructure expenditure rose 4.4% year over year in the first quarter. Industrial production increased 8.5% in March, representing the fastest growth since July 2014. Retail sales rose 8.7% in the month and were the strongest since last September.
The Chinese economy also showed more resilience to the trade war with the United States than expected. Chinese exports were up 21.3% year over year in March. Moreover, the U.S. government recently postponed a tariff hike on Chinese imports which hints at stabilizing trade ties. If these were not enough, the Chinese government has been planning to focus more on increasing domestic consumption in order to reduce dependency on exports.
ETF’s in Focus
Against this backdrop, investors can keep a tab on a few China ETFs like Reality Shares Nasdaq NexGen Economy China ETF , Global X MSCI China Communication Services ETF , CSOP FTSE China A50 ETF (AFTY - Free Report) , KraneShares CICC China Leaders 100 Index ETF and Invesco Golden Dragon China ETF (PGJ - Free Report) .
BCNA
This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the Reality Shares Nasdaq Blockchain China Index. It comprises 40 holdings. The fund’s AUM is $2.5 million and expense ratio is 0.78%. The fund has returned 38.8% year to date (read: What Led China ETFs Outperform in Q1 & Have More Room to Run).
CHIC
This fund tracks the MSCI China Communication Services 10/50 Index. It comprises 27 holdings. The fund’s AUM is $27.4 million and expense ratio is 0.65%. It has returned 22% year to date.
AFTY
This fund tracks the FTSE China A50 Net Total Return Index. It comprises 50 holdings. The fund’s AUM is $11.9 million and expense ratio is 0.70%. The fund has returned 37.5% year to date.
KFYP
This fund tracks the performance of the CSI CICC Select 100 Index. It comprises 98 holdings. The fund’s AUM is $2.9 million and expense ratio is 0.71%. The fund has returned 35.1% year to date (read: China's 2018 GDP Growth 28-Year Low: ETFs That Lost the Most).
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 64 stocks. The product has AUM of $209.9 million and charges 70 bps in annual fees. The fund has returned 31.1% year to date (read: A Spread of Top-Ranked ETFs That Crushed the Market in Q1).
Bottom Line
Although the latest data may be hinting at an upbeat Chinese economy, the country has cut its economic growth forecast for 2019 to the range of 6-6.5%, down from growth estimate of 6.5% over the past two years. Moreover, the decline in Chinese imports is making analysts fear a slowdown in demand. Meanwhile, the Organisation for Economic Co-operation and Development has expressed concerns about the adverse impact of China’s macroeconomic policies in the medium term. It fears that the current policies might compromise China’s ability to control debt and lead to structural distortions (per a Reuters report).
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China's Economy Beats Growth Forecasts: 5 ETFs in Focus
While speculations of a global economic slowdown are making the rounds, China has provided some respite to investors by beating first-quarter growth estimates. Despite odds like weak global demand, trade tensions with the United States and debt-related issues, the Chinese economy expanded 6.4% in the quarter, surpassing economists’ forecasts of a 6.3% rise. However, first-quarter GDP was in line with the fourth-quarter 2018 number.
Rejoicing on the news, investors chose to grab Australian dollar, which is considered the liquid proxy for China plays. As a result, Australian dollar rose 0.3% to a two-month high of $0.7206.
Factors Behind the Impressive Numbers
Analysts believe that policymakers in China have done a good job in supporting the economy. China’s economy witnessed a rise in bank loans and total outstanding credit. Fresh credit was released in the economy and the reserves required to be kept at banks were lowered. Moreover, government supported the economy by increasing investments made by state-owned firms to 6.7%. Additionally, recently released credit report data reflected a 10.7% rise in outstanding total social financing in March.
The restrictions on housing transactions and mortgages for the past two years have also been relaxed. A minimum of 50 cities are speculated to have relaxed the restrictions on residency permits this year. The move intended to provide some support to the local real estate markets. In fact, there was a 10.6% rise in average of the housing prices in 70 big Chinese cities in March. This also happens to be the fastest gain since April 2017.
The Chinese policy makers are also aggressively working on their taxation policies. Last month, the Chinese government announced plans to implement $298 billion deductions in taxes and company fees. It announced a cut in the value-added tax (VAT) for the manufacturing sector to 13% from 16%, and VAT for the transport and construction sectors to 9% from 10%.
Other economic indicators like infrastructure expenditure rose 4.4% year over year in the first quarter. Industrial production increased 8.5% in March, representing the fastest growth since July 2014. Retail sales rose 8.7% in the month and were the strongest since last September.
The Chinese economy also showed more resilience to the trade war with the United States than expected. Chinese exports were up 21.3% year over year in March. Moreover, the U.S. government recently postponed a tariff hike on Chinese imports which hints at stabilizing trade ties. If these were not enough, the Chinese government has been planning to focus more on increasing domestic consumption in order to reduce dependency on exports.
ETF’s in Focus
Against this backdrop, investors can keep a tab on a few China ETFs like Reality Shares Nasdaq NexGen Economy China ETF , Global X MSCI China Communication Services ETF , CSOP FTSE China A50 ETF (AFTY - Free Report) , KraneShares CICC China Leaders 100 Index ETF and Invesco Golden Dragon China ETF (PGJ - Free Report) .
BCNA
This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the Reality Shares Nasdaq Blockchain China Index. It comprises 40 holdings. The fund’s AUM is $2.5 million and expense ratio is 0.78%. The fund has returned 38.8% year to date (read: What Led China ETFs Outperform in Q1 & Have More Room to Run).
CHIC
This fund tracks the MSCI China Communication Services 10/50 Index. It comprises 27 holdings. The fund’s AUM is $27.4 million and expense ratio is 0.65%. It has returned 22% year to date.
AFTY
This fund tracks the FTSE China A50 Net Total Return Index. It comprises 50 holdings. The fund’s AUM is $11.9 million and expense ratio is 0.70%. The fund has returned 37.5% year to date.
KFYP
This fund tracks the performance of the CSI CICC Select 100 Index. It comprises 98 holdings. The fund’s AUM is $2.9 million and expense ratio is 0.71%. The fund has returned 35.1% year to date (read: China's 2018 GDP Growth 28-Year Low: ETFs That Lost the Most).
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 64 stocks. The product has AUM of $209.9 million and charges 70 bps in annual fees. The fund has returned 31.1% year to date (read: A Spread of Top-Ranked ETFs That Crushed the Market in Q1).
Bottom Line
Although the latest data may be hinting at an upbeat Chinese economy, the country has cut its economic growth forecast for 2019 to the range of 6-6.5%, down from growth estimate of 6.5% over the past two years. Moreover, the decline in Chinese imports is making analysts fear a slowdown in demand. Meanwhile, the Organisation for Economic Co-operation and Development has expressed concerns about the adverse impact of China’s macroeconomic policies in the medium term. It fears that the current policies might compromise China’s ability to control debt and lead to structural distortions (per a Reuters report).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>