China’s manufacturing sector slowed for the sixth consecutive month and contracted at its fastest pace in over three years, dragging on Chinese stock exchange traded funds and reversing a rebound in oil markets.
China A-shares ETFs that track mainland Chinese stocks traded in Shanghai and Shenzhen retreated Monday, with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) down 3.2%, KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) down 3.0%and Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) 3.8% lower. The China A-shares ETFs have fallen back below their long-term 200-day EMA and their short-term 50-day EMA.
Meanwhile, the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD), which takes the inverse exposure to Chinese A-shares, was among the best performers Monday, rising 3.5%.
China’s manufacturing sector contract at its fastest since 2012 last month, compounding concerns about the world’s second largest economy. The official purchasing managers’ index, o r PMI, was at 49.4 in January, its weakest since August 2012, compared to the previous month’s 49.7 reading, theguardian reports. The 50 mark separates growth from contraction on a monthly basis.
“The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors,” Zhou Hao, an economist at Commerzbank, told theguardian.
However, Angus Nicholson of IG in Melbourne reminds investors that first quarter activity in China tends to be the weakest due to the seasonal disruption of the lunar new year, which occurs Monday, February 8.
The poor manufacturing sector is also weighing on the oil markets as China is the world’s largest energy consumer, reports Devika Krishna Kumar for Reuters.
On Monday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, fell 6.0% while the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, dropped 4.1%. Meanwhile, WTI futures was down 5.4% to $31.8 per barrel while Brent crude was 4.3% lower to $34.4 per barrel.
On the other hand, aggressive bearish traders are capitalizing on the misfortune through inverse ETF options, including the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, and DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil, jumped 17.4%. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil. On Monday, SCO increased 11.9%, DTO jumped 13.3% and DWTI surged 18.7%.
“China is the last standing consumer of oil outside of the U.S.. The problem is that everyone is relying on them,” Carl Larry, director of business development at Frost & Sullivan, told Reuters. “As long as we keep in this scenario where China is the only real consumer to pick up the pace, we’re going to see moves lower every time China has an issue with their economy.”
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF
Max Chen contributed to this article.