Hong Kong ETF in Focus as Chinese Data Disappoints
June 10th at 7:45am by Tom Lydon
Already under significant pressure, China ETFs and funds that track nations with exposure to the world’s second-largest economy could be in the cross-hairs again this week following a spate of disappointing economic data over the weekend.
In late May, China’s National Bureau of Statistics said the country’s official PMI for May rose to 50.8 from 50.6 in April, but any ebullience from that report was quickly lost last Monday when China’s unofficial HSBC manufacturing PMI report fell to 49.2 in May from 50.4 in April. That news sent the iShares FTSE China 25 Index Fund (NYSEArca: FXI) to a loss of almost 2% last week. [June Could be Another Rough Month For Big China ETF]
The iShares MSCI Hong Kong Index Fund (NYSEArca: EWH) was even worse, tumbling 3% on the week. Although Hong Kong is considered a developed market, it is a Chinese territory and traders have been showing even less love to EWH than they have to FXI. In the past month, FXI is lower by 6.7%, but EWH has fallen 7.2%. That represents a sharp turn of events for EWH, the largest Hong Kong ETF, which was in noticeable uptrend during the early part of the first quarter. [Hong Kong ETFs Continue Uptrend]
The Hong Kong ETF could be under added pressure this week following a raft slack Chinese data released over the weekend. After Chinese officials cracked down on the use of currency manipulation as a means of boosting export data, growth in Chinese exports was a mere 1% last month. Exports to the U.S. and European Union registered a third consecutive monthly decline. Imports fell 0.3%, well below the expected 6% increase.
China’s consumer inflation slowed to 2.1%, the lowest in three months, while producer prices (PPI) fell 2.9%, the lowest since September, Langi Chiang and Jonathan Standing reported for Reuters. Retail sales, fixed-asset investment and industrial output met expectations, rising 12.9 percent, 20.4 percent and 9.2 percent from a year earlier, according to the Reuters article.
Merely meeting expectations on a few data points and disappointing on others is not what investors will want to see with EWH, FXI or any other China ETF for that matter. China’s first-quarter GDP rose 7.7%, and while that sounds great compared to developed markets, that was below the 7.9% growth seen in the fourth quarter and estimates on the country’s full-year economic output are falling, not rising. [China ETFsFall on Manufacturing Slump]
EWH offered some clues regarding what the weekend’s data points from China would look like. Last Friday when U.S. stocks were soaring on the back of a decent May jobs report, EWH closed lower on volume that was roughly 16 times the daily average.
EWH has a trailing 12-month yield of 2.47%, more than 50 basis points better than the iShares Core S&P 500 ETF (NYSEArca: IVV). Hong Kong also offers the benefit of being a developed market with an AAA credit rating. Still, none of those factors are compelling investors to embrace EWH. The ETF has seen outflows of $691.6 million since the start of May, more than triple the amount pulled from FXI over the same time, according to Index Universe data.
Adding to the bearishness surrounding EWH, the ETF fell below its 200-day moving average last week. Should the ETF fall just another 1.4%, it would officially be in correction territory, or a 10% decline from its most recent peak, which is $21.02 in early May.
iShares MSCI Hong Kong Index Fund
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.