Exchange-traded funds that buy Chinese stocks slid Monday, extending back-to-back weekly losses after China’s disappointing economic data and fresh worries cast a cloud over the country’s property sector.
Shares of the iShares MSCI China ETF MCHI, which has about $ 8 billion of assets under management, closed down 0.7% on Monday while on pace for their worst month since May, according to FactSet data. The fund’s largest holdings on Aug. 11 included Tencent Holdings 700, -0.77%, Alibaba Group Holding 9988, -2.62%, Meituan 3690, -1.31%, China Construction Bank Corp. 939, -1.64% and JD.com Inc. 9618, -1.30%, according to data on BlackRock’s website.
Concerns about China’s economy increased Monday after Country Garden Holdings Co. suspended trading in some offshore bonds, “reminding investors of Chinese property market volatility from years ago and reinforcing that recession risks in China are real,” Tom Essaye, founder and president of Sevens Report Research, said in a note. He also cited “downbeat trade data out of China” last week, with imports and exports both missing estimates.
The iShares MSCI China ETF has tumbled 8.6% so far in August, while the KraneShares CSI China Internet ETF has seen a steeper plunge of 10.2% this month through Monday. The KraneShares CSI China Internet ETF KWEB, with around $ 6 billion of assets under management, was also on pace for its worst monthly performance since May, according to FactSet data.
“Further evidence of a deeper growth deceleration in China is a clear near-term risk to sentiment and earnings,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note Monday. She pointed to property challenges and “tepid Chinese credit data on Friday,” saying the volume of new loans in July was weaker than expected probably because of “intensified advanced mortgage repayments and a sequential deterioration in housing sales.”
Shares of other China-focused ETFs also finished lower Monday, with the Xtrackers Harvest CSI 300 China A-Shares ETF ASHR off 0.3% and the Rayliant Quantamental China Equity ETF RAYC down 0.4% while the KraneShares CSI China Internet ETF shed 0.3%, according to FactSet data.
“We view the sharp data miss on credit as another signal that end demand remains weak amid the lackluster support measures from Beijing so far,” said Marcelli. “On the other hand, a deteriorating macroeconomic picture should increase pressure on policymakers to promptly take more forceful stimulus steps to stem pressure and support growth in the second half.”
In anticipation of a potential turn to more supportive policies, she said that within Chinese equities UBS is keeping “our growth-tilted barbell approach by holding policy beneficiaries like consumer and internet as well as defensive sectors for downside protection on the other side.”
China-focused ETFs have suffered losses this year, with the iShares MSCI China ETF falling 4.2% through Monday, the Xtrackers Harvest CSI 300 China A-Shares ETF sliding 4% and the KraneShares CSI China Internet ETF dropping 4.9% and the Rayliant Quantamental China Equity ETF tumbling 14%, FactSet data show.
All four funds ended down Monday after sliding the past two consecutive weeks.
Jennifer McKeown, chief global economist at Capital Economics, said in a note Monday that it appears “the immediate global economic and market fallout from troubles” at Country Garden will likely be limited. But she also cautioned that “the developer’s problems are indicative of a structural downturn which will shape the global economy for years to come.”
China, the world’s second-largest economy, faces demographic challenges with a falling population while “a combination of over-investment and a reluctance to let the market do more of the work in allocating resources will contribute to a slowdown in productivity growth,” according to a separate note Monday from Capital Economics.
Read: China-focused ETFs fall after country’s growth disappoints, deepening 2023 losses