Back to top

Image: Bigstock

ETFs at Risk as Coronavirus Hits China's Economy Hard

Read MoreHide Full Article

The number of new coronavirus cases in China is falling dramatically but it seems that the damage is done. The latest data reveals the impact of the pandemic on China’s economy, with industrial output and retail sales plummeting. Considering the normal seasonal swings around the Lunar New Year holiday, China’s economic data has been released on a combined basis for January and February (read: Is the Virus-Induced Stock Selloff Overdone? ETFs to Buy Now).

Inside China’s Economic Data

The world’s second-largest economy saw a 13.5% year-over-year decline in industrial production in the first two months of 2020 in comparison to December 2019’s rise of 6.9%. The metric, which measures manufacturing, mining and utilities activities, also compared unfavorably with analysts’ expectations of a decline of 3%.

Going on, China witnessed a 20.5% decline in retail sales, which is a key gauge of consumption in comparison, with growth of 8% in December. The decline in the metric was wider than analysts’ expectation of a decline of 4%.

Another metric for measuring infrastructure, property, machinery and equipment spending, the fixed asset investment saw a decline of 24.5% during the first two months of 2020, against growth of 5.4% in 2019. The metric also compares unfavorably with the estimates of a 2% contraction. Going on, there was a 16.3% decline in the real estate investment, which primarily focuses on the residential sector but includes commercial and office space. Moreover, China's urban unemployment rate increased to 5.7% in February from 5.2% last December (read: Beat Virus With 2 Sector ETFs & Stocks That Survived 2008 Crisis).

The sinking of China’s economy to all-time lows in the first two months of the year can majorly be seen as a byproduct of the coronavirus eruption during the Lunar New Year holiday when retail sales generally rise. Moreover, weakened consumer spending and factories struggling to work at full capacity have added to the slump in the economic growth. However, about 95% of the large companies outside Hubei province have restored normal functioning along with roughly 60% of small to medium-sized firms reinstating operations.

Moreover, the rapidly-spreading coronavirus outside mainland China is a concern as slowing global economic growth might result in waning demand. Also, analysts are estimating a historic contraction in China’s economy in the first quarter of 2020. However, March’s data that makes for around about 40% of quarterly economy will play a major role in China’s first quarter economic growth. Also, China’s central bank has been taking adequate measures. It recently injected $14.3 billion into the financial system, with the offer of one-year medium-term lending facility loans. The People’s Bank of China has also trimmed the amount of cash a bank must hold in reserve. The move is expected to inject about 550 billion yuan of liquidity into the financial system (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF (FXI - Free Report) , iShares MSCI China ETF (MCHI - Free Report) , Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR - Free Report) and Invesco Golden Dragon China ETF (PGJ - Free Report) .

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 $4.32 billion and expense ratio is 0.74% (read: Can China ETFs Survive the Coronavirus Onslaught?).

MCHI

This fund tracks the MSCI China Index. It comprises 606 holdings. The fund’s AUM is $5.15 billion and expense ratio is 0.59% (read: ETFs to Suffer as China's Q1 Growth Outlook Gets Gloomier).

ASHR

This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.85 billion and expense ratio is 0.65%.

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 $174 million and charges 70 bps in annual fees.

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 >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


ISHARS-MS CH IF (MCHI) - free report >>

ISHARS-CHINA LC (FXI) - free report >>

XT-HV CS3 CHNA (ASHR) - free report >>

INVS-GL DR HA (PGJ) - free report >>

Published in