China’s gross domestic product (GDP) contracted 6.8% during the first quarter, marking its first contraction since 1992 when the country started reporting quarterly GDP. It’s an inauspicious turn of events as the coronavirus outbreak put a stranglehold on the Chinese economy, which could fuel bearish ETF traders via the Direxion Daily FTSE China Bear 3X ETF (NYSEArca: YANG).
With the virus reaching global pandemic mode, other countries are expected to follow suit with similar contractions during the first quarter. For China, it’s still an unprecedented slice of economic data the country is having trouble processing.
“The nature of this shock is really different than anything we’ve ever seen in our lifetimes,” said Andrew Tilton, chief Asia Pacific economist for Goldman Sachs. “I don’t think we’ve seen anything like this since 1976.”
However, the 6.8% contraction still comes under the 8.3% expected by 15 economists polled by the Wall Street Journal. However, it’s not all doom and gloom.
Per a WSJ report, the “underlying picture offered some signs of recovery after a nadir in February, though the numbers underscored the weakness of consumer spending. China’s urban jobless rate, largely static around 5% for years despite the ups and downs of the economy, remained at an elevated 5.9% at the end of March, after a record 6.2% reading in February.”
“It’s the biggest challenge to the Chinese and the world economy during peacetime in modern history,” said Ding Shuang, head of greater China economic research at Standard Chartered.
Buy the Dip?
Bullish traders looking to buy the dip can look to leveraged ETFs like the Direxion Daily FTSE China Bull 3X ETF (NYSEArca: YINN), Direxion Dly CSI 300 China A Share Br 1X ETF (NYSEArca: CHAD), Direxion Daily CSI 300 CHN A Share Bl 2X ETF (NYSEArca: CHAU), and Direxion Daily CSI CHN Internet Bull 2X Shares (NYSEArca: CWEB).
For un-leveraged, broad-based exposure to China, there’s the iShares China Large-Cap ETF (NYSEArca: FXI), but here is one caveat–the majority of the holdings in the guts of the ETF consist of state-owned enterprises where the government prevents full autonomy of these companies.
As such, one ETF to consider is the Xtrackers Harvest CSI 300 China A ETF (NYSEArca: ASHR) as a way for investors to gain exposure to China’s biggest, best and most authentic equities. ASHR seeks investment results that track the CSI 300 Index that is designed to reflect the price fluctuation and performance of the China A-Share market. In essence, it’s composed of the 300 largest and most liquid stocks in the China A-Share market, including small-cap, mid-cap, and large-cap stocks.
Without a majority of its holdings in state-owned enterprises compared to FXI, ASHR provides a more authentic and diversified representation of gaining access to the world’s second largest economy.
For more market trends, visit ETF Trends.