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Can China ETFs Gain on Improving Manufacturing Activity Data?

The world’s second-largest economy seems to be recovering from the crippling effects of the coronavirus pandemic as it reports encouraging manufacturing activity data. China’s official Purchasing Manager’s Index (PMI) reading for June has managed to surpass expectations in spite of the odds. The PMI for June came in at 50.9, beating analysts’ expectations of 50.4 (per a Reuters’ poll). The metric compares favorably with 50.6 seen in May. Notably, PMI readings above 50 indicate expansion.

Analysts believe that rise in new export orders is supporting the encouraging data. The index measuring new export levels came in at 42.6 for June against May’s 35.3, per a CNBC article. However, the metric is still in contracting territory. Meanwhile, China’s official non-manufacturing PMI was 54.4 in June, comparing favorably with 53.6 in May.

Pandemic a Threat to Factories

As the economy is reopening, China is seeing an uptick in domestic demand. However, the country exposed to the risks of waning international demand as the coronavirus outbreak is wreaking havoc globally. Also, its factories have been continuing to decrease headcount for the second time in June since the reopening despite stronger demand, per a Reuters article. In fact, the survey’s sub-index has slipped to 49.1 from 49.4 in May.

In this regard, Huatai securities macro analyst Yang Chang said that, “the contrast between rising new orders and more job-shedding shows companies were still cautious about demand recovering in the short term,” per a Reuters article.

As the number of coronavirus cases has crossed the grim mark of 10 million globally, it is being feared that the economies may pause the reopening process and impose lockdown measures to control the spread of the virus. Such a move will definitely hurt the import and export levels of China.

Going on, the International Monetary Fund (IMF) has downgraded its outlook for the global economy and now expects a deeper global recession. It has said that the pandemic is causing wider and deeper damage to economic activity than initially predicted, leading government deficits to soar. It is predicting output to shrink 4.9% in 2020, much deeper than the 3% contraction estimated in April (according to a Reuters report).

Commenting further on the current scenario, IMF alerted that massive job cuts and business shutdowns would slow down recovery for the global economy. It now projects global growth in 2021 at 5.4%, which is far below its pre-pandemic predictions (per a Reuters' report).

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like iShares MSCI China ETF MCHIiShares China Large-Cap ETF FXIXtrackers Harvest CSI 300 China A-Shares ETF ASHRSPDR S&P China ETF GXC,  iShares MSCI China A ETF CNYA and Invesco Golden Dragon China ETF PGJ .

MCHI

This fund tracks the MSCI China Index. It comprises 609 holdings. The fund’s AUM is $5.35 billion and expense ratio is 0.59% (read: Alibaba Tops Fiscal Q4 Earnings: ETFs in Focus).

FXI

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 $3.06 billion and expense ratio is 0.74% (read: Crude Plunges Again: Country ETFs to Win/Lose).

ASHR

This fund tracks the CSI 300 Index. It comprises 308 holdings. The fund’s AUM is $1.31 billion and expense ratio is 0.65%.

GXC

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P China BMI Index. It comprises 730 holdings. The fund’s AUM is $1.20 billion and expense ratio is 0.59%.

CNYA

The fund tracks the MSCI China A Inclusion Index. It comprises 473 holdings. The fund’s AUM is $375.4 million and expense ratio is 0.60% (read: Are China ETFs at Risk as Economy Shrinks on Coronavirus Blows?).

PGJ

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies headquartered or incorporated in the People’s Republic of China. It holds a basket of 64 stocks. The product has an AUM of $186.3 million and charges 70 bps in annual fees.

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iShares MSCI China ETF (MCHI): ETF Research Reports
 
iShares China LargeCap ETF (FXI): ETF Research Reports
 
SPDR SP China ETF (GXC): ETF Research Reports
 
Xtrackers Harvest CSI 300 China AShares ETF (ASHR): ETF Research Reports
 
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
iShares MSCI China A ETF (CNYA): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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