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Slowdown in April Retail Sales Put China ETFs in Focus

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China has reported less-than-expected retail sales and investments for the month of April. As a result, policymakers and analysts are expecting a slowdown in the economy. Retail sales grew by 9.4% which is down from March when it was 10.1%. As a trade war between the United States and China is highly anticipated considering the hostile behavior of both countries, fixed asset investment grew by 7%, which is the lowest since 1999. Industrial output is the only positive take away from the result that has added some hope to a dampening Chinese economy. In April, industrial growth was 7% compared with 6% growth in March (Read: China ETFs to Watch Amid Signs of Weak Economic Growth).

Insight Into the Chinese Economy

Infrastructure spending which is one of the strengths in China’s economy slowed down to 12.4% in the first four months compared with 13% in the same period the previous year. The trend is expected to continue as Beijing is putting pressure on the local governments to reduce their debt. It is due to these strict regulations of the government that home sales have reduced. Moreover, an increase in mortgage rate has led to a slowdown in the real estate sector.

Many analysts in China believe that the result is an indication of the long-term slowdown that the Chinese economy might get into. The country consumes half of the world’s nickel (56%), cement (59%), copper (50%) and steel (50%). From 2009-12, China has spent US$7.9 trillion to boost internal demand, which was followed by another round of capital stimulus to the tune of 70 trillion Yuan. The banks have 80% of their loan exposure to the housing sector which is slowing down. As China is the biggest consumers of most metals, any slowdown in their economy would necessarily mean a fall in commodity prices in the international market.

In addition to that, China being a communist country, access to data is not easy. Most analysts are of the opinion that most of the information and statistics that the country is providing need to be introspected and the actual data in reality could be far more disastrous. China under these circumstances should not be over-ambitious and look for high GDP growth as it will push up the inflation rate. Rather, the country should be looking to stabilize its market through subsidies and price controls (read: 6 ETFs Gain on Alibaba Robust Earnings).

The Chinese government has decided to work out incentives to the housing and infrastructure sector. Industrial activity improved on account of relaxing the strict pollution control norms, which were there during winter. Senior China economist of Capital economics believes that the domestic spending will continue to slowdown due to lesser credit creation. The government of China needs to increase its fiscal spending and encourage more people to invest in the home-buying segment by easing up credit regulations.

Chinese ETFs to Consider

Despite its slowing economy, let us discuss some Chinese ETFs where you can invest in for long-term benefits;

iShares China Large-Cap ETF (FXI - Free Report)

This fund tracks the investment results of FTSE China 50 Index. The fund has an expense ratio of 0.74%. FXI is the top ranked ETF in terms of assets as it manages stocks of $4.6 billion distributed within 50 fund holdings. From an individual perspective, China Construction Bank Corp (8.9%), Tencent Holdings Ltd (8.5%) and Industrial and Commercial Bank of China (8.4%) are the top three allocations in this fund. Average daily volume of trade is 21.7 million. Financials (48.4%), Energy (13%) and Information Technology (10.8%) are the top three sector holdings. The fund has Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares MSCI China ETF (MCHI - Free Report)

The ETF seeks investment results of the performance of MSCI China Index. This fund is composed of 154 stocks and has asset under management of $3.8 billion. The expense ratio of the ETF is 0.62% and the top two stocks include Tencent Holdings Ltd (17.5%) and Alibaba Group Holding ADR (13.2%). In terms of sectors, Information Technology (40.9%) and Financials (22.7%) are the top two allocations in this fund. The fund has average daily volume of trade of 2.8 million and has a Zacks ETF Rank #2 with a Medium risk outlook.

KraneShares CSI China Internet ETF (KWEB - Free Report)

The fund seeks to analyze investment results, of the CSI Overseas China Internet Index. The fund charges a fee of 72 basis points a year. The fund manages assets of $1.6 billion. The top three stock holdings in this fund consist of Alibaba Group Holding Sp (9%), Tencent Holdings (8.85%) and Baidu (8.1%). Tech (63.6%) and Discretionary (29.5%) are the two dominant sectors controlling this fund. This Zacks ETF Rank #2 fund has average daily volume of trade of 627,000 (read: What Lies Ahead For China ETFs).

SPDR S&P China ETF (GXC - Free Report)

The fund seeks to track closely the returns and characteristics of the total performance of the S&P China BMI Index. Expense ratio of the fund is 0.59% and has 351 holdings under its purview. It has amassed assets of $1.2 billion and the top stocks are Tencent Holdings (15%) and Alibaba Group (11.1%). As far as sector holdings are concerned the top three consists of Information Technology (36.11%), Financials (22.91%) and Consumer Discretionary (10.2%). The average daily volume of trade is 91,300 and is a Zacks ETF Rank #2 with Medium risk.

Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR - Free Report)

The fund seeks investment results which correspond to the CSI 300 Index. This fund consists of 313 stocks and has a fee of 65 basis points per year. Assets under management of ASHR are $585.5 million and have daily volume of trade of 1.07 million. Financials (35.2%), Industrials (13.1%) and Consumer Discretionary (11.94%) are the three prominent sector holdings which controls majority of the stake. It has Zacks ETF Rank #2.

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