ETF Impact: China's Economic Growth Report

Monday brought with it reports that shed light on the Chinese economy – a point of global interest. The headlines can be swung either way, the 6.9% number is the worst since 2009 during the thick of the global financial crisis. However, the Shanghai Composite (SSEC) actually opened the week by gaining 0.5% because the lower numbers actually beat the tamed expectations put out by different economists.

The Wall Street Journal reported a more bearish take on China’s future, quoting economist Klaus Baader saying, “Overall it’s pretty disappointing, Investment continued to slow pretty sharply despite efforts by the government to support the economy. It doesn’t seem to be sufficient.” The Journal goes on to give China credit for maintaining a rate of growth that developed economies would die for, but point to specific sectors disappointing that will continue to drag on overall growth.

The areas China struggled:

  • Industrial production grew only 5.7% year on year, against expectations of 5.9% 
  • Fixed-asset investment came in at 10.3%, well below its 10.9% target

Retail was a bright spot in that it met its 10.9% expectation.

Despite the continued slowdown of economic growth in China, the markets have seen Asian investors dip their toes back in the water. A lot of investors thought the expectations would be fallen well short of, so even coming close and meeting a few has stirred up investor confidence. IG’s market analyst Augus Nicholson told CNBC, “Nonetheless, markets have clearly been buoyed by the better than expected headline number, and it shows that China’s economy has not deteriorated as much as some had thought.”

Whichever way you’d like to view the impact of this report, the markets have favored the ETF China bulls in the past month. The Market Vectors ChinaAMC SME-ChiNext ETF (NYSEarca: CNXT) has surged 26.4% in the past month against the Direction Daily China 3X Bear Shares ETF (NYSEarca: YANGwhich lost 19.7% over the same time span.