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China Economic Data Disappoints: ETFs in Focus


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After releasing inflation data, which beat market expectations last week, China's economy has started showing signs of cooling. Economic expansion in the world's second-largest economy slowed as it posted slow investment growth, retail sales and factory output (read: China ETFs in Focus as Inflation Increases ).


In the recent Congress meeting, Chinese policymakers indicated their shift of agenda to crackdown on pollution and financial risks from economic growth at any cost.


Economic Data Misses Expectations


China's industrial output grew 6.2% year over year in October compared with 6.6% in September, and below Reuters forecast of 6.3%. China's production curbs to crack down on pollution have affected energy and pollution-intensive companies and have added to their cost pressures.


Moreover, retail sales grew 10.0% year over year in October compared with 10.3% in September, and came in below Reuters forecast of 10.4%.


A major growth driver for the Chinese economy, fixed-asset investment grew 5.8% in the January- October period compared with 6.0% in the January-September period.


Economic Environment


China's National Bureau of Statistics said that the country's GDP grew 6.8% year over year in the third quarter compared with 6.9% in the second quarter. The Chinese government has been facing challenges of curbing property market speculation and high debt. The government's crackdowns on financial risks led to a slowdown in economic activity in some parts of the country.


China's consumer prices increased 1.9% year over year in October compared with 1.6% in September, and came in above expectations of 1.8%, per the National Bureau of Statistics (NBS). However, it is still way behind China's target of 3%. The bureau also added that producer prices increased 6.9% year over year in October, unchanged from September and above expectations of a 6.6% increase.


China is also subject to geopolitical risks as Asian markets suffer from massive volatility due to North Korea's actions. It'll be interesting to see how Chinese policymakers strike a balance between economic growth, debt concerns and pollution curbs in the near future.


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


This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.


It has AUM of $3.7 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 52.6%, 11.3% and 10.0% exposure, respectively (as of Nov 10, 2017). From an individual holding perspective, Tencent Holdings Ltd, China Construction Bank Corp and Industrial and Commercial Bank of China are the top three allocations of the fund, with 10.0%, 8.5% and 7.6% exposure, respectively (as of Nov 10, 2017). The fund has returned 35.3% year to date and 30.5% in a year (as of Nov 13, 2017). FXI currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


iShares MSCI China ETF MCHI


This ETF is another such option to play the BRIC nation.


It has AUM of $2.7 billion and charges a fee of 64 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%, 22.7% and 9.6% exposure, respectively (as of Nov 10, 2017). 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 17.6%, 13.3% and 4.6% exposure, respectively (as of Nov 10, 2017). The fund has returned 54.1% year to date and 48.8% in a year (as of Nov 13, 2017). MCHI currently has a Zacks ETF Rank #3 with a Medium risk outlook.


SPDR S&P China ETF GXC


This fund has AUM of $1.1 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 36.8%, 22.3% and 10.5% exposure, respectively (as of Nov 10, 2017). 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 14.5%, 11.4%, and 5.0% exposure, respectively (as of Nov 10, 2017). The fund has returned 51.2% year to date and 45.9% in a year (as of Nov 13, 2017). GXC currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


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ISHARS-CHINA LC (FXI): ETF Research Reports

SPDR-SP CHINA (GXC): ETF Research Reports

ISHARS-MS CH IF (MCHI): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs
Referenced Symbols: FXI , GXC , MCHI


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