China's Manufacturing Stalls In November: ETFs In Focus

China’s manufacturing activity stalled in November. The Manufacturing Purchasing Managers Index (PMI) fell to 50.0 from 50.2 in October. This was the weakest reading since July 2016. Anything above the 50 point level indicates that activity levels are improving while a reading below it shows signs of deterioration.

China’s National Bureau of Statistics (NBS) claimed that the fall in the index was due to slower improvement at large manufacturers and sharp decline in activities of the small sectors. Activity levels in the mid-sized firms also stalled a bit but at a slower pace than in October.

NBS reported that new orders, input prices and supplier delivery time rose at a slower pace than in October. Selling prices fell for the first time in eight months and firms exercised layoff measures for the third consecutive month. Inventory levels and order backlogs also fell at a faster pace than the previous month.

Chinese economy has been slowing down due to several factors including its multi-year campaign to curb corporate debt and risky borrowing practices. In a statement accompanying the data release, NBS confirmed that country’s import and export orders are indicating growing downward pressure owing to trade friction. Indicators measuring the demand for imports and exports were stuck in the contractionary phase for the fifth successive month (read: China Cuts Rate for Fourth Time: ETFs in Focus).

NBS’s non-manufacturing PMI also fell to 53.4 from 53.9 in October, its weakest improvement since August 2017. The non-manufacturing sector in China accounts for a significant chunk of the total economic output. Therefore, this index’s reading could hold much more importance than manufacturing PMI.

However, the recent meeting between President Trump and Xi at G-20 summit in Argentina came as a ray of hope. In Argentina, President Trump and Xi Jinping agreed to a 90-day truce according to which the Trump administration will not be hiking tariffs to 25% from 10% on $200 billion worth of Chinese goods for another 90 days. The rates were supposed to be hiked on Jan 1, 2019.

This period has been mutually decided for having further negotiations “on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cybertheft, services and agriculture”, according to a White House statement.”

In return, Beijing agreed to buy substantial quantities of U.S. goods to bring down the bilateral trade imbalance. China has already started purchasing agricultural produce such as soybeans from America (read: Trump-Jingping Truce to Boost These ETFs).

On Dec 4, President Trump tweeted, "President Xi and I want this deal to happen, and it probably will," Trump tweeted. "But if not remember... I am a Tariff Man.” One could infer from this tweet that the end of the trade war is not easy to come by. However, this truce might help Beijing to recover a bit in the near term.

China ETFs in Focus

These ETFs have been performing very well over the past week on growing optimism surrounding the trade talks. Below we highlight them in detail (as of Dec 4): (see: all the Asia-Pacific (Emerging) ETFs here)

iShares China Large-Cap ETF (TE:FXI)

The fund tracks the FTSE China 25 Index, which tracks the performance of the largest companies in the Chinese equity market. It comprises 50 holdings. The fund’s AUM is $6.1 billion and expense ratio is 0.74%. It has returned 2% over the past week.

iShares MSCI China ETF MCHI

The fund tracks the MSCI China Index. It comprises 293 holdings. The fund’s AUM is $3.9 billion and expense ratio is 0.62%. It has returned 2.2% over the past week (read: Alibaba (NYSE:BABA) Beats on Earnings, Lowers Guidance: ETFs in Focus).

KraneShares CSI China Internet ETF KWEB

The fund tracks the CSI China Overseas Internet Index, which includes publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors. It comprises 44 holdings. The fund’s AUM is $1.8 billion and expense ratio is 0.70%. It has returned 2% over the past week.

SPDR S&P China (NYSE:GXC) ETF GXC

The fund tracks the S&P China BMI Index and comprises 641 holdings. It has AUM of $991.9 million and expense ratio is 0.59%. It has returned 2% over the past week.

Xtrackers Harvest CSI 300 China A-Shares Fund ASHR

The fund tracks the CSI 300 Index, reflecting price fluctuation and performance of the China A-share market and comprises 300 largest and most-liquid stocks in the China A-share market. It comprises 301 holdings. The fund’s AUM is $1.2 billion and expense ratio is 0.65%. It has returned 4% over the past week.

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