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China CPI Down, PPI Steady: ETFs in Focus

China’s inflation in July came below expectations on a year-over-year basis. The inflation data represented by the Consumer Price Index (CPI) and Producer Price Index (PPI) was released on August 9, 2017.


National Bureau of Statistics reported that the country’s Consumer Price Index increased 1.4% year over year in July 2017, a lot below the central bank’s 3% target for the year. Producer Price Index increased 5.5% year over year as a result of soaring commodity prices and resilient demand. These figures missed Bloomberg forecasts as analysts had predicted a 1.5% rise in CPI and a 5.6% rise in PPI. However, PPI increased 0.2% on a monthly basis after three consecutive declines.


China’s GDP has been growing at a strong pace. It increased 6.9% year over year in the second quarter of 2017 and same as the first quarter (read: China Q2 GDP Beats Expectations: ETFs in Focus).


Although PPI has increased at an encouraging pace, growth in the sub-index slowed compared with the eight-year high of 7.8% it hit in February 2017. This can primarily be attributed to fears of a potential financial crisis owing to the looming debt problem faced by the country (read: China's Inflation, Debt & Impact on Australia: ETFs in Focus).


Interestingly, there is so much debt that it will be difficult for China to handle growth targets while maintaining risks at a certain level. Moreover, per CNN, China’s corporate debt reached 170% of GDP in 2016, almost double the average of other economies’ load. This prompted Moody’s to downgrade China’s rating by a notch to A1 from Aa3 earlier this year in May (read: Moody's Cuts China's Credit Rating: ETFs in Focus).


However, second-quarter growth numbers provide hopes to the Chinese government to attain their 6.5% growth target for 2017, while also creating room for tackling financial risks and introducing controls for handling the debt problem. The debt scenario in the world’s second largest nation prompted the government to adopt a tightening monetary policy stance in order to rein in debt.


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 FXI


This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.


It has AUM of $3.40 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 Telecommunication Services are the top three allocations of the fund, with 52.68%, 10.98% and 10.16% exposure, respectively (as of August 7, 2017). From an individual holding perspective, Tencent Holdings Ltd, China Construction Bank Corp and Industrial And Commercial Bank of China are the top three allocations of the fund, with 9.77%, 8.70% and 7.22% exposure, respectively (as of August 7, 2017). The fund has returned 24.76% year to date and 19.40% in the last one year (as of August 8, 2017). FXI currently has a Zacks ETF Rank #3 (Hold) 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 $2.70 billion and charges a fee of 64 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 38.45%, 23.33% and 10.13% exposure, respectively (as of August 7, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corp are the top three allocations of the fund, with 16.10%, 12.43% and 4.94% exposure, respectively (as of August 7, 2017). The fund has returned 39.06% year to date and 34.45% in the last one year (as of August 8, 2017). MCHI currently has a Zacks ETF Rank #3 with a Medium risk outlook.


SPDR S&P China ETF GXC


This fund has AUM of $981.37 million and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 33.66%, 22.57% and 11.51% exposure, respectively (as of August 7, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top three allocations of the fund, with 13.05%, 10.42%, and 4.76% exposure, respectively (as of August 7, 2017). The fund has returned 37.40% year to date and 33.51% in the last one year (as of August 8, 2017). GXC currently has a Zacks ETF Rank #3 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
 
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