China Manufacturing More Than 2-Year Low: ETFs In Focus

China’s manufacturing sector expanded at its lowest pace in over two years. The economy has been hardly hit by the ongoing trade war with the United States. The official Manufacturing Purchasing Managers Index (PMI) which points to business conditions in the country dipped to 50.2 from 50.8 in September. A reading above 50 points toward expansion while below it means contraction. The reading was under the forecast 50.6 in a Reuters’ poll (see: all the Asia-Pacific (Emerging) ETFs).

China’s statistics bureau attributed the slump in October's manufacturing activity to the impact of a week-long national holiday and the challenging external environment. Non Manufacturing PMI, mirroring the activities in the construction and services sector also dipped from 54.9 in September to 53.9 in October.

There was a slump in new export orders for the fifth successive month as it fell to 46.9 from 48.0 in September with the pace of this decline estimated to be the fastest in nearly a year. Imports contracted for the fourth successive month (read: Trump's Approval Rises before Midterms: ETFs to Lose/Gain).

Raymond Yeung, chief economist for China at ANZ believes that the PMI numbers confirm broad-based decline in economic activity. He added that conditions for the private sector is “much worse” than headline data suggest.

A possible contraction in manufacturing could be expected in the coming months as the tariff war is heating up more with time. This data came out after tariffs imposed by the United States on Sep 24 took full effect for at least a month. Trump Administration levied tariffs at 10% on $200 billion worth of Chinese imports on the said date. Exporters are likely to feel further pain when these rates are hiked to 25% beginning next year.

Chinese Yuan fell to a decade-low on Oct 30 triggered by a slowdown in economy and news that President Trump is likely to impose tariffs on a full range of Chinese imports if desired concessions are not received form President Li in the ongoing trade talks. President Trump and Li are supposed to meet in G-20 Summit in Argentina later this month (read: Stimulus Hopes Boost China's Stocks: ETFs Gain the Most).

China’s economy expanded at 6.5% in the third quarter — marking its weakest pace of growth since the first quarter of 2009 and with manufacturing numbers missing estimates, the following Chinese ETFs could expect some unfavorable pricing action:

Chinese ETFs in Focus

iShares China Large-Cap ETF (TE:FXI)

The fund tracks the FTSE China 25 Index which tracks performance of largest companies in the Chinese equity market. It comprises 50 holdings. AUM is $4.8 billion and the expense ratio is 0.74%. It has lost 15% year to date.

iShares MSCI China ETF MCHI

The fund tracks the MSCI China Index measuring the performance of equity securities in the top 85% in market capitalization of Chinese equity markets, represented by H-Shares and B-Shares markets. It comprises 293 holdings. AUM is $3.3 billion and expense ratio is 0.62%. It has lost 21.2% year to date.

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. AUM is $1.4 billion and expense ratio is 0.70%. It has lost 32.3% year to date.

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

The fund tracks the S&P China BMI Index and comprises 641 holdings. AUM is $914.2 million and expense ratio is 0.59%. It has lost 20.9% year to date.

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 is composed of the 300 largest and most-liquid stocks in the China A-share market. It comprises 301 holdings. AUM is $910.8 million and expense ratio is 0.65%. It has lost 21% year to date.

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