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Will China ETFs Feel the Heat of Weak Economic Data?

This story originally appeared on Zacks

The world’s second-largest economy continues to see a streak of disappointing economic data for August. According to the National Bureau of Statistics (NBS), industrial production increased 5.3% year over year in August (seeing the weakest pace since July 2020), comparing unfavorably with the 6.4% increase in July. The metric also lagged analysts’ forecast of a 5.8% rise, per a Reuters article. China’s retail sales rose 2.5% year over year in August, lagging the forecast of 7% growth (according to a Reuters article).

Commenting on the data, Louis Kuijs, Head of Asia Economics at Oxford Economics, has said, “Economic growth slowed in August as consumption was hit by the lingering impact of earlier COVID outbreaks and investment remained weak. Meanwhile, a new outbreak which started a few days ago in Fujian is posing downside risk to our forecast of a pick-up in growth in Q4 after a weak Q3,” as stated in a Reuters article.

There is no doubt that China showed fast recovery from the pandemic-led economic slowdown. However, it appears like slowing export levels, strict initiatives to control hot property prices, the coronavirus outbreak and efforts to reduce carbon emissions might have triggered a slowdown in economic recovery.

Considering the current economic conditions, various analysts are expecting enhanced government support. In this regard, Jingyang Chen, Greater China economist at HSBC, has said, “As growth is approaching the lower end of the officially-estimated potential growth range of 5.0-5.7%, Beijing may step up targeted easing to generate a moderate pick-up in growth in our view. We expect the government to further speed up special bond issuance and the central bank to roll out more targeted easing measures, including targeted RRR cuts, to support SMEs,” as stated in a Reuters article.

Moreover, China’s economy grew 7.9% year over year in the second quarter of 2021, slowing sharply from a record 18.3% expansion in first-quarter 2021 and falling short of the market consensus of 8.1%. A slowdown in factory activity, higher raw material costs and the COVID-19 outbreak stalled the recovery. Meanwhile, China has set an economic growth target of above 6% for 2021.

Another important economic data released earlier was also disappointing. China’s official manufacturing Purchasing Manager’s Index (PMI) came in at 50.1 for August in comparison with 50.4 in July. The metric also lagged analysts’ forecast of 50.2, per a Reuters article. Notably, any reading above 50 signals expansion. Surging raw material prices and COVID-related constraints are likely to have impacted manufacturers, building pressure on them. Going on, China’s official non-manufacturing PMI for August stood at 47.5, the lowest since the height of the pandemic in early 2020.

China ETFs That Might Suffer

Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF MCHIiShares China Large-Cap ETF FXIXtrackers Harvest CSI 300 China A-Shares ETF ASHRSPDR 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 613 holdings. The fund’s AUM is $6.32 billion and expense ratio is 0.59% (read: Alibaba Misses Revenue Estimates: ETFs in Focus).

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 $4.99 billion and expense ratio is 0.74%.

ASHR

This fund tracks the CSI 300 Index. It comprises 304 holdings. The fund’s AUM is $2.43 billion and 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 834 holdings. The fund’s AUM is $1.82 billion and expense ratio is 0.59% (read: Is This the Time to Buy China ETFs on Bargain?).

CNYA

The fund tracks the MSCI China A Inclusion Index. It comprises 483 holdings. The fund’s AUM is $715.5 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 99 stocks. The product has AUM of $236.3 million and charges 70 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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