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Will China ETFs Feel the Pressure of Weak Economic Data?
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The world’s second-largest economy has witnessed some slowdown in factory activity in January. According to data from the National Bureau of Statistics (NBS), the official manufacturing Purchasing Manager's Index (PMI) came in at 50.1 in the first month of 2022, comparing unfavorably with 50.3 in December. However, analysts projected the reading at 50. Notably, any reading above 50 indicates expansion. The resurging cases from the coronavirus outbreak and increased restrictions impacting production and demand might have impacted the data.
The official PMI sub-index for production came in at 50.9, declining from 51.4 in December 2021. The new orders index was also down to 49.3 from 49.7 in the last month of 2021.
It is worth noting that China had shown rapid recovery from the pandemic-led economic slowdown last year. However, debt problems in the property market stalled the recovery momentum. Surging raw material prices and COVID-related constraints are likely to have impacted manufacturers, building pressure on them.
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. These changes involve reducing carbon emission levels and crackdowns on the property sector and major technology players. Accordingly, the government is eyeing to soon restrict industrial air pollution levels before the Beijing Winter Olympics begin. In this regard, steel mills in northern regions have been asked to decrease production until mid-March, per a Reuters article.
China’s economy witnessed 4.0% year-over-year growth in the fourth quarter in 2021 (weakest expansion in one and a half years). Going on, the International Monetary Fund has lowered its growth projections for China in 2022 to 4.8% from 5.6% stated previously due to the above-mentioned hurdles (according to a Reuters article).
In this regard, Zhang Zhiwei, chief economist at Pinpoint Asset Management, has said that "Industrial activity slowed due to weak domestic demand. The service sector is also affected adversely by the outbreaks in many cities. The weak PMI indicates the policy easing measures from the government have not yet been passed to the real economy... We expect the government will step up policy supports in coming months, particularly through more fiscal spending, " as stated in a Reuters article.
Notably, China’s central bank is providing support by slashing interest rates and introducing more cash into the financial system to reduce borrowing costs. These steps are coming at a time when China’s property crisis is expected to remain at least in first-half 2022 and the uncertainty surrounding the pandemic prevails.
China ETFs That Might Suffer
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 627 holdings. The fund’s AUM is $6.25 billion and expense ratio is 0.57%.
FXI
This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the FTSE China 50 Index. It comprises 51 holdings. The fund’s AUM is $5.83 billion and expense ratio is 0.74% (read:Top-Performing Broad Foreign ETFs of 2021).
ASHR
This fund tracks the CSI 300 Index. It comprises 313 holdings. The fund’s AUM is $3.22 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 884 holdings. The fund’s AUM is $1.48 billion and expense ratio is 0.59% (read: Alibaba Tumbles on Weak Earnings Report: ETFs in Focus).
CNYA
The fund tracks the MSCI China A Inclusion Index. It comprises 491 holdings. The fund’s AUM is $921.1 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 95 stocks. The product has AUM of $198.6 million and charges 69 basis points in annual fees.
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Will China ETFs Feel the Pressure of Weak Economic Data?
The world’s second-largest economy has witnessed some slowdown in factory activity in January. According to data from the National Bureau of Statistics (NBS), the official manufacturing Purchasing Manager's Index (PMI) came in at 50.1 in the first month of 2022, comparing unfavorably with 50.3 in December. However, analysts projected the reading at 50. Notably, any reading above 50 indicates expansion. The resurging cases from the coronavirus outbreak and increased restrictions impacting production and demand might have impacted the data.
The official PMI sub-index for production came in at 50.9, declining from 51.4 in December 2021. The new orders index was also down to 49.3 from 49.7 in the last month of 2021.
It is worth noting that China had shown rapid recovery from the pandemic-led economic slowdown last year. However, debt problems in the property market stalled the recovery momentum. Surging raw material prices and COVID-related constraints are likely to have impacted manufacturers, building pressure on them.
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. These changes involve reducing carbon emission levels and crackdowns on the property sector and major technology players. Accordingly, the government is eyeing to soon restrict industrial air pollution levels before the Beijing Winter Olympics begin. In this regard, steel mills in northern regions have been asked to decrease production until mid-March, per a Reuters article.
China’s economy witnessed 4.0% year-over-year growth in the fourth quarter in 2021 (weakest expansion in one and a half years). Going on, the International Monetary Fund has lowered its growth projections for China in 2022 to 4.8% from 5.6% stated previously due to the above-mentioned hurdles (according to a Reuters article).
In this regard, Zhang Zhiwei, chief economist at Pinpoint Asset Management, has said that "Industrial activity slowed due to weak domestic demand. The service sector is also affected adversely by the outbreaks in many cities. The weak PMI indicates the policy easing measures from the government have not yet been passed to the real economy... We expect the government will step up policy supports in coming months, particularly through more fiscal spending, " as stated in a Reuters article.
Notably, China’s central bank is providing support by slashing interest rates and introducing more cash into the financial system to reduce borrowing costs. These steps are coming at a time when China’s property crisis is expected to remain at least in first-half 2022 and the uncertainty surrounding the pandemic prevails.
China ETFs That Might Suffer
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 627 holdings. The fund’s AUM is $6.25 billion and expense ratio is 0.57%.
FXI
This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the FTSE China 50 Index. It comprises 51 holdings. The fund’s AUM is $5.83 billion and expense ratio is 0.74% (read:Top-Performing Broad Foreign ETFs of 2021).
ASHR
This fund tracks the CSI 300 Index. It comprises 313 holdings. The fund’s AUM is $3.22 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 884 holdings. The fund’s AUM is $1.48 billion and expense ratio is 0.59% (read: Alibaba Tumbles on Weak Earnings Report: ETFs in Focus).
CNYA
The fund tracks the MSCI China A Inclusion Index. It comprises 491 holdings. The fund’s AUM is $921.1 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 95 stocks. The product has AUM of $198.6 million and charges 69 basis points in annual fees.