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China Q2 GDP Beats Expectations: ETFs in Focus

The Chinese economy grew faster than expected in the second quarter of 2017, as it reported an increase of 6.9% in GDP compared with analyst expectations of 6.8%, the National Bureau of Statistics reported. The growth rate was same as the first quarter (read: Asia Business Optimism at 3-Year High: ETFs in Focus).


The surge in GDP growth is believed to be driven by higher exports and manufacturing, primarily steel. Although the country’s 6.5% growth target for 2017 seems attainable, China still faces high risks from growing protectionism. Most importantly, acknowledging the high trade deficit with China and steel trade between the two countries have become top priorities for U.S. president Donald Trump.


However, this high growth rate is expected to be transitory and not recur in the second half of 2017, as the country deals with the looming debt crisis. As a result, the latest positive economic data is expected to help China further its policies to reduce financial risks (read: China's Inflation, Debt & Impact on Australia: ETFs in Focus).


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).


China’s Consumer Price Index increased 1.5% year over year in June 2017, while Producer Price Index increased 5.5% year over year.


China’s retail sales grew 11% year over year in June 2017 and 10.4% year over year in the first half of 2017 compared with a 10% reading for the first quarter. Moreover, China’s factory output grew 7.6% year over year in June.


Let us now discuss a few ETFs focused on providing exposure to the Chinese economy.


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 $3.27 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 51.55%, 11.02 % and 10.23% exposure, respectively (as of July 14, 2017). From an individual holding perspective, Tencent Holdings Ltd, China Construction Bank Corp and China Mobile Ltd are the top three allocations of the fund, with 8.90%, 8.59% and 7.28% exposure, respectively (as of July 14, 2017). The fund has returned 20.2% year to date and 18.93% in the last one year (as of July 17, 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 $2.58 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 36.93%, 23.49% and 10.52% exposure, respectively (as of July 14, 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 15.07%, 12.48% and 5.01% exposure, respectively (as of July 14, 2017). The fund has returned 31.26% year to date and 31.8% in the last one year (as of July 17, 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 $933.03 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 32.39%, 22.97% and 11.97% exposure, respectively (as of July 14, 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 12.31%, 10.55%, and 4.86% exposure, respectively (as of July 14, 2017). The fund has returned 29.91% year to date and 31.06% in the last one year (as of July 17, 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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