Will China ETFs Suffer From Weak Economic Data Releases?

·4 min read

The world’s second-largest economy has witnessed disappointing third-quarter growth, largely due to power shortages and a slowdown in the property sector. According to the National Bureau of Statistics, China’s third-quarter GDP grew 4.9% year over year, slowing down from 7.9% in the second quarter of 2021 and falling short of the market consensus of 5.2% (per a Reuters poll). The metric also looks extremely disappointing when compared with the record 18.3% expansion in first-quarter 2021.

China’s industrial production increased 3.1% in September, lagging analysts’ estimate of 4.5% per a Reuters poll. In this regard, Fu Linghui, spokesperson for the National Bureau of Statistics, has said that “Since entering the third quarter, domestic and overseas risks and challenges have increased,” per a CNBC article. Factories in China had to struggle with power shortages as they had to stop production in late-September, according to a Reuters article. Rising coal prices and shortage of electricity pushed local authorities to cut off power supplies.

Market pundits also blame the slowdown in China’s economic recovery on President Xi Jinping’s efforts to implement structural modifications to manage long-term risks and distortions (as stated in a Reuters article). These changes involve reducing carbon emission levels and crackdowns on the property sector and major technology players.

The current economic conditions in China do not appear to be very upbeat as analysts are lowering their growth forecasts. Barclays’ analysts have slashed their fourth-quarter estimate by 1.2% to 3.5% on strained data (per a Reuters article). Going on, analysts at ANZ have reduced their expectations for China's 2021 GDP growth to 8.0% from 8.3%.

Meanwhile, all hopes are now on policymakers who will have to balance the slowdown impact of those structural changes with conducive steps that will protect the economy and manage contagion risks from a debt crisis at China Evergrande Group, according to a Reuters article. In this regard, Louis Kuijs, head of Asia economics at Oxford Economics, has stated that "In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies." This was mentioned in a Reuters article.

China ETFs That Might Suffer

Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF MCHI, iShares China Large-Cap ETF FXI, Xtrackers Harvest CSI 300 China A-Shares ETF ASHR, SPDR S&P China ETF GXC, iShares MSCI China A ETF CNYA and Invesco Golden Dragon China ETF PGJ.

MCHI

This fund tracks the MSCI China Index. It comprises 612 holdings. The fund’s AUM is $6.37 billion and expense ratio is 0.59% (read: Will China ETFs Feel the Heat of Weak Economic Data?).

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 $5.14 billion and expense ratio is 0.74% (read: Top ETF Stories of September).

ASHR

This fund tracks the CSI 300 Index. It comprises 304 holdings. The fund’s AUM is $2.41 billion and expense ratio is 0.65%.

GXC

The fund seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the S&P China BMI Index. It comprises 901 holdings. The fund’s AUM is $1.74 billion and expense ratio is 0.59%.

CNYA

The fund tracks the MSCI China A Inclusion Index. It comprises 484 holdings. The fund’s AUM is $712.2 million and expense ratio is 0.60%.

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 96 stocks. The product has AUM of $712.2 million and charges 69 basis points in annual fees.


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iShares China LargeCap ETF (FXI): ETF Research Reports
 
SPDR S&P China ETF (GXC): ETF Research Reports
 
iShares MSCI China ETF (MCHI): ETF Research Reports
 
Xtrackers Harvest CSI 300 China AShares ETF (ASHR): ETF Research Reports
 
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
iShares MSCI China A ETF (CNYA): ETF Research Reports
 
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