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Are China ETFs at Risk as Economy Shrinks on Coronavirus Blows?
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The world’s second-largest economy witnessed shrinking economic growth for the first time, at least since 1992 (when official releases of quarterly GDP had begun) in the first quarter. The latest report reflects a year-over-year decline of 6.8% in China’s first-quarter GDP due to the suspension of economic activities to fight the coronavirus pandemic, in sharp contrast to the expansion of 6% registered in the fourth quarter of 2019, per a Reuters article. The data also compares unfavorably with analysts’ expectations of a 6.5% decline. Moreover, there was a 16.1% year-over-year decline in the fixed-asset investment in the first quarter, per a Reuters article.
China’s Economy at a Glance
China’s export and import numbers did witness year-over-year declines in March but successfully beat analyst estimates. According to data from the General Administration of Customs, the country’s exports declined 6.6% year over year in March, while imports slid 0.9% in the same month, per a CNBC article. The figures displayed smaller-than-expected contraction, as against the expectations of a year-over-year decline of 14% in exports in March and a 9.5% fall in imports (per a Reuters’ poll). China’s March trade surplus came in at $19.9 billion, in comparison to analysts’ expectations of $18.55 billion, per a CNBC article.
China’s official Purchasing Manager Index (PMI) for March managed to surpass expectations despite its economy being hit by the pandemic. According to a CNBC article, the PMI for March came in at 52, beating analysts’ expectations of 45 (per a Reuters’ poll). The metric compares favorably with the record low level of 35.7 seen in February. Notably, PMI readings above 50 indicate expansion. China’s official non-manufacturing PMI came in at 52.3 in March comparing favorably with 29.6 in February.
Looking Ahead
China is, nevertheless, still exposed to risks of the second wave of new coronavirus infections and drop in global economic growth. The slowing global economic growth might result in declining export numbers in the country. Along with waning global demand, China is also concerned about the slowing domestic demand as retail sales decreased 15.8% in March, per a Reuters article.
Meanwhile, the urban jobless rate according to surveys is improving. It came in 5.9% in March in comparison to February’s record 6.2%, per a Reuters article. Also, China’s central bank has been taking adequate measures. It injected 100 billion yuan ($14 billion) via the one-year medium-term lending facility, trimming the rate to 2.95% from 3.15%, according to a Bloomberg article. The banks’ reserve ratio has also been reduced by 50 basis points (bps). This move is expected to inject about 200 billion yuan of liquidity into the financial system (per a Bloomberg article).
ETFs in Focus
Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF (MCHI - Free Report) , iShares China Large-Cap ETF (FXI - Free Report) , Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR - Free Report) , SPDR S&P China ETF (GXC - Free Report) , iShares MSCI China A ETF (CNYA - Free Report) and Invesco Golden Dragon China ETF (PGJ - Free Report) .
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 $4.09 billion and the expense ratio, 0.74% (read: Will China ETFs Gain on New Round of Monetary Easing?).
ASHR
This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.63 billion and the expense ratio is 0.65%.
GXC
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P China BMI Index. It comprises 733 holdings. The fund’s AUM is $1.23 billion and the expense ratio, 0.59%.
This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies headquartered or incorporated in the People’s Republic of China. It holds a basket of 65 stocks. The product has an AUM of $162 million and charges 70 bps in annual fees.
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Are China ETFs at Risk as Economy Shrinks on Coronavirus Blows?
The world’s second-largest economy witnessed shrinking economic growth for the first time, at least since 1992 (when official releases of quarterly GDP had begun) in the first quarter. The latest report reflects a year-over-year decline of 6.8% in China’s first-quarter GDP due to the suspension of economic activities to fight the coronavirus pandemic, in sharp contrast to the expansion of 6% registered in the fourth quarter of 2019, per a Reuters article. The data also compares unfavorably with analysts’ expectations of a 6.5% decline. Moreover, there was a 16.1% year-over-year decline in the fixed-asset investment in the first quarter, per a Reuters article.
China’s Economy at a Glance
China’s export and import numbers did witness year-over-year declines in March but successfully beat analyst estimates. According to data from the General Administration of Customs, the country’s exports declined 6.6% year over year in March, while imports slid 0.9% in the same month, per a CNBC article. The figures displayed smaller-than-expected contraction, as against the expectations of a year-over-year decline of 14% in exports in March and a 9.5% fall in imports (per a Reuters’ poll). China’s March trade surplus came in at $19.9 billion, in comparison to analysts’ expectations of $18.55 billion, per a CNBC article.
China’s official Purchasing Manager Index (PMI) for March managed to surpass expectations despite its economy being hit by the pandemic. According to a CNBC article, the PMI for March came in at 52, beating analysts’ expectations of 45 (per a Reuters’ poll). The metric compares favorably with the record low level of 35.7 seen in February. Notably, PMI readings above 50 indicate expansion. China’s official non-manufacturing PMI came in at 52.3 in March comparing favorably with 29.6 in February.
Looking Ahead
China is, nevertheless, still exposed to risks of the second wave of new coronavirus infections and drop in global economic growth. The slowing global economic growth might result in declining export numbers in the country. Along with waning global demand, China is also concerned about the slowing domestic demand as retail sales decreased 15.8% in March, per a Reuters article.
Meanwhile, the urban jobless rate according to surveys is improving. It came in 5.9% in March in comparison to February’s record 6.2%, per a Reuters article. Also, China’s central bank has been taking adequate measures. It injected 100 billion yuan ($14 billion) via the one-year medium-term lending facility, trimming the rate to 2.95% from 3.15%, according to a Bloomberg article. The banks’ reserve ratio has also been reduced by 50 basis points (bps). This move is expected to inject about 200 billion yuan of liquidity into the financial system (per a Bloomberg article).
ETFs in Focus
Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF (MCHI - Free Report) , iShares China Large-Cap ETF (FXI - Free Report) , Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR - Free Report) , SPDR S&P China ETF (GXC - Free Report) , iShares MSCI China A ETF (CNYA - Free Report) and Invesco Golden Dragon China ETF (PGJ - Free Report) .
MCHI
This fund tracks the MSCI China Index. It comprises 603 holdings. The fund’s AUM is $5.32 billion and the expense ratio is 0.59% (read: Should You Buy China ETFs as Coronavirus Cases Wane?).
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 $4.09 billion and the expense ratio, 0.74% (read: Will China ETFs Gain on New Round of Monetary Easing?).
ASHR
This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.63 billion and the expense ratio is 0.65%.
GXC
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P China BMI Index. It comprises 733 holdings. The fund’s AUM is $1.23 billion and the expense ratio, 0.59%.
CNYA
The fund tracks the MSCI China A Inclusion Index. It comprises 467 holdings. The fund’s AUM is $322.9 million and the expense ratio is 0.60% (read: What Coronavirus? These China ETFs Gained Past Month).
PGJ
This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies headquartered or incorporated in the People’s Republic of China. It holds a basket of 65 stocks. The product has an AUM of $162 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 >>