The world’s second-largest economy exhibited strong performance in the first quarter. Strength in consumer spending drove expansion and overshadowed the troubles facing the economy.
ISHARS-CHINA LC (FXI): ETF Research Reports
SPDR-SP CHINA (GXC): ETF Research Reports
ISHARS-MS CH IF (MCHI): ETF Research Reports
Original post
Zacks Investment Research
However, this was not enough to convince pessimists of a brighter future, as they questioned the impact of the trade friction and high debt on the economy.
Into the Headlines
China’s economy grew 6.8% year over year in the first quarter, slightly slower than 6.9% reported in 2017. Moreover, first-quarter data was above the 2018 target of 6.5%.
Exports led the way for China’s economic expansion in the quarter, as it grew 14% in the first quarter compared with 8% in the prior-year quarter. However, the outlook for this space remains cloudy, owing to increasing trade tensions with the United States.
Producer prices slowed to a 17-month low of 3.1% on a year-over-year basis in March compared with 3.7% in the previous month. Moreover, consumer prices increased 2.1% in March compared with 2.9% in February. The numbers in February seemed to be distorted, owing to a one-off increase in demand due to Lunar New Year celebrations.
Although consumer spending increased 9.8% in the quarter, it was below the 10.0% growth registered in the year-ago quarter. Moreover, investments in roads, airports and other infrastructure slowed to 13.0% compared with 23.5% in the year-ago quarter. The relative weakness in these numbers support the prediction of a slowdown in the coming months.
“March data point to nascent signs of a growth slowdown underway, led by old economy sectors,” per a Bloomberg article, citing a statement by Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc.
Risks Involved
From a domestic perspective, the Chinese government is aiming to crack down on high debt levels and pollution intensive industries to transform the manufacturing oriented economy to a more balanced one. President Xi Jinping’s aim to shift the economic growth drivers to quality instead of just quantity by cracking down on pollution might initially lead to a gradual slowdown in economic growth (read: Should You Buy EM ETFs Despite Trade War & Other Concerns?).
Moving on to trade, tensions between Washington and Beijing have been bothering the markets for quite some time now. Although talks of negotiations solving the dispute have been doing the rounds, given the highly volatile nature of these talks, nothing can be said with certainty. In a rare show of bipartisanship between Asia’s two largest countries, China and Japan are seeking each other’s cooperation to tackle tariffs imposed by the United States (read: Trade Tensions or Not, Stay Safe with These ETFs).
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 (TE:FXI)
This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.
It has AUM of $4.5 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 allocations of the fund, with 48.7%, 11.9% and 11.1% exposure, respectively. From an individual holding perspective, China Construction Bank Corp, Tencent Holdings Ltd and Industrial and Commercial Bank of China are the top allocations of the fund, with 9.0%, 8.5% and 8.4% exposure, respectively. The fund has returned 25.9% in a year. FXI has a Zacks ETF Rank #2 (Buy) 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 $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 allocations of the fund, with 39.8%, 23.4% and 9.1% exposure, respectively. From an individual holding perspective, Tencent Holdings Ltd, Alibaba (NYSE:BABA) Group Holding ADR and China Construction Bank Corp are the top allocations of the fund, with 17.9%, 12.0% and 5.3% exposure, respectively. The fund has returned 37.3% in a year. MCHI has a Zacks ETF Rank #2 with a Medium risk outlook.
This fund has AUM of $1.2 billion and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top allocations of the fund, with 35.1%, 23.2% and 10.2% exposure, respectively. From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top allocations of the fund, with 14.9%, 10.4% and 5.9% exposure, respectively. The fund has returned 35.1% in a year. GXC has a Zacks ETF Rank #2 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
Original post
Zacks Investment Research
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