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China’s manufacturing purchasing managers index (PMI) edged down in January, owing to the government’s crackdown on pollution intensive industries. Although strong economic fundamentals led the country to post strong economic data in 2017, growth in 2018 might cool down following government’s crackdown on polluting industries and high debt levels.
China’s economy grew 6.9% in 2017 compared with 6.7% in the previous year, the first annual acceleration since 2010, and way above the government’s full-year target of 6.5%. Government infrastructure spending and strong export growth helped the economy post better-than-expected results (read: China ETFs in Focus as GDP Beats Expectations).
More Into the Headlines
Manufacturing PMI decreased to 51.3 in January compared with 51.6 in the prior month and below a Reuters forecast of 51.5, per China’s National Bureau of Statistics. A reading above 50 indicates expansion.
Moving on to factors that edged down PMI, a sub-index of output declined to 53.5 in January compared with 54 in December. Moreover, new orders index decreased to 52.6 in the month compared with 53.4 in the prior month.
Risks Involved
PMI data shows the country’s current scenario and business conditions. It helps judge the impact of policymakers’ focus on reducing pollution and financial risks on the economy. Per a BBC article, citing IMF data, China’s debt has reached 234% of total output, a sure red flag.
Coming to authenticity of economic data, multiple analysts argue that China’s official data is anybody’s guess and cannot be completely trusted. Recently, provinces of Liaoning and Jilin, the city of Tianjin and parts of Inner Mongolia admitted that their 2016 economic numbers were overstated.
China, being North Korea’s biggest trade partner, is also subject to geopolitical risks as Asian markets suffer from massive volatility due to North Korea’s actions. Although North Korea’s participation in the South Korea Winter Olympics has been giving a ray of hope that tensions will ease, latest information says that North Korea is planning to show off dozens of long-range missiles in a show of force on Feb 8, a day before the Olympics is set to begin. This comes after U.S. President Donald Trump criticized Kim Jong-un’s actions as reckless in his first State of the Union speech.
This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.
It has AUM of $4.7 billion and is a relatively expensive bet as it charges a fee of 74 basis points a year. From a sector look, Financials, Energy and Information Technology are the top three allocations of the fund, with 55.3%, 11.5% and 8.9% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, China Construction Bank Corp, Tencent Holdings Ltd and Industrial and Commercial Bank of China are the top three allocations of the fund, with 10.2%, 8.9% and 7.8% exposure, respectively (as of Jan 30, 2018). The fund has returned 47.0% in a year. FXI has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.
This ETF is another such option to play the BRIC nation.
It has AUM of $3.5 billion and charges a fee of 62 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 41.1%, 23.6% and 9.0% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corp are the top three allocations of the fund, with 18.7%, 12.8% and 5.3% exposure, respectively (as of Jan 30, 2018). The fund has returned 61.8% in a year. MCHI has a Zacks ETF Rank #3, with a Medium risk outlook.
This fund has AUM of $1.3 billion and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 36.3%, 23.5% and 10.2% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top three allocations of the fund, with 15.6%, 11.1%, and 5.9% exposure, respectively (as of Jan 30, 2018). The fund has returned 59.2% in a year. GXC has a Zacks ETF Rank #3, with a Medium risk outlook.
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What Lies Ahead For China ETFs?
China’s manufacturing purchasing managers index (PMI) edged down in January, owing to the government’s crackdown on pollution intensive industries. Although strong economic fundamentals led the country to post strong economic data in 2017, growth in 2018 might cool down following government’s crackdown on polluting industries and high debt levels.
China’s economy grew 6.9% in 2017 compared with 6.7% in the previous year, the first annual acceleration since 2010, and way above the government’s full-year target of 6.5%. Government infrastructure spending and strong export growth helped the economy post better-than-expected results (read: China ETFs in Focus as GDP Beats Expectations).
More Into the Headlines
Manufacturing PMI decreased to 51.3 in January compared with 51.6 in the prior month and below a Reuters forecast of 51.5, per China’s National Bureau of Statistics. A reading above 50 indicates expansion.
Moving on to factors that edged down PMI, a sub-index of output declined to 53.5 in January compared with 54 in December. Moreover, new orders index decreased to 52.6 in the month compared with 53.4 in the prior month.
Risks Involved
PMI data shows the country’s current scenario and business conditions. It helps judge the impact of policymakers’ focus on reducing pollution and financial risks on the economy. Per a BBC article, citing IMF data, China’s debt has reached 234% of total output, a sure red flag.
Coming to authenticity of economic data, multiple analysts argue that China’s official data is anybody’s guess and cannot be completely trusted. Recently, provinces of Liaoning and Jilin, the city of Tianjin and parts of Inner Mongolia admitted that their 2016 economic numbers were overstated.
China, being North Korea’s biggest trade partner, is also subject to geopolitical risks as Asian markets suffer from massive volatility due to North Korea’s actions. Although North Korea’s participation in the South Korea Winter Olympics has been giving a ray of hope that tensions will ease, latest information says that North Korea is planning to show off dozens of long-range missiles in a show of force on Feb 8, a day before the Olympics is set to begin. This comes after U.S. President Donald Trump criticized Kim Jong-un’s actions as reckless in his first State of the Union speech.
Let us now discuss a few ETFs focused on providing exposure to the Chinese economy (see all Asia-Pacific Emerging ETFs here).
iShares China Large-Cap ETF (FXI - Free Report)
This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.
It has AUM of $4.7 billion and is a relatively expensive bet as it charges a fee of 74 basis points a year. From a sector look, Financials, Energy and Information Technology are the top three allocations of the fund, with 55.3%, 11.5% and 8.9% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, China Construction Bank Corp, Tencent Holdings Ltd and Industrial and Commercial Bank of China are the top three allocations of the fund, with 10.2%, 8.9% and 7.8% exposure, respectively (as of Jan 30, 2018). The fund has returned 47.0% in a year. FXI has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.
iShares MSCI China ETF (MCHI - Free Report)
This ETF is another such option to play the BRIC nation.
It has AUM of $3.5 billion and charges a fee of 62 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 41.1%, 23.6% and 9.0% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corp are the top three allocations of the fund, with 18.7%, 12.8% and 5.3% exposure, respectively (as of Jan 30, 2018). The fund has returned 61.8% in a year. MCHI has a Zacks ETF Rank #3, with a Medium risk outlook.
SPDR S&P China ETF (GXC - Free Report)
This fund has AUM of $1.3 billion and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 36.3%, 23.5% and 10.2% exposure, respectively (as of Jan 30, 2018). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top three allocations of the fund, with 15.6%, 11.1%, and 5.9% exposure, respectively (as of Jan 30, 2018). The fund has returned 59.2% in a year. GXC has a Zacks ETF Rank #3, with a Medium risk outlook.
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 >>