ETFs To Suffer As China's Q1 Growth Outlook Gets Gloomier

China’s economy has been severely battered by the coronavirus outbreak that is still not showing any signs of slowing down any time soon. Per a Reuters’ poll, the virus outbreak is expected to have lowered the world’s second largest economy’s growth in the current quarter to half of that in fourth-quarter 2019 (read: What Coronavirus? These China ETFs Gained Past Month).

In fact, according to Reuters’ new poll of more than 40 economists that was conducted from Mar 3-5, growth is projected to decline to a median of 3.5% in first-quarter 2020 from 6% in the final quarter of 2019. The results of the new poll show more depressing growth forecasts than those projected in the Feb 14 polls. In fact, compared with 3.5% in the February poll, the worst case scenario median forecast in the new poll for the current quarter was 2.4%.

With forecasts varying in the range of 3.7-6.5%, growth in the second quarter of 2020 is expected to rebound to 5.6%. Moreover, economic growth for the ongoing year being projected at 5.4% will be the slowest pace of growth since 1990.

However, China’s latest economic data is already reflecting the impact of COVID-19. Per the National Bureau of Statistics, the world’s second largest economy’s official Purchasing Managers' Index (PMI) came in at 35.7 in February compared with 50.0 in January. The country’s manufacturing activity, apparently, slumped to the lowest level since it began recording the figures in 2005. The gauge of sentiment in the services and construction sectors, China’s non-manufacturing PMI also declined to 29.6 in February from Januarys’ 54.1. Here as well, the metric tanked to the lowest level ever recorded (read: Will China ETFs Suffer as Coronavirus Dents Factory Output?).

Meanwhile, China’s government has been confident and claimed that the adverse impacts from the epidemic will be short-term only and the nation will be able to meet the economic and social goals for 2020 that it had set earlier. It is also being speculated that People’s Bank of China will slash the one-year loan prime rate to 3.85% from the current level of 4.05% by the middle of 2020.

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF (TE:FXI) , iShares MSCI China ETF MCHI, Xtrackers Harvest CSI 300 China A-Shares ETF ASHR and Invesco Golden Dragon China ETF PGJ.

FXI — down 8.5% year to date

This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the FTSE China 50 Index. It comprises 50 holdings. The fund’s AUM is $4.50 billion and expense ratio is 0.74% (read: Most Actively Traded ETFs Over the Past 20 Days).

MCHI — down 4.2%

This fund tracks the MSCI China Index. It comprises 605 holdings. The fund’s AUM is $5.14 billion and expense ratio is 0.59% (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).

ASHR — down 0.4%

This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.83 billion and expense ratio is 0.65%.

PGJ — down 3.6%

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China. It holds a basket of 66 stocks. The product has AUM of $180.6 million and charges 70 basis points (bps) in annual fees (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

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