As per data from the National Bureau of Statistics (NBS), China’s industrial sector has seen solid growth in April in spite of pollution curbs and trade wars. The data released on May 26 revealed that profits rose 21.9% year over year in April, to $90.4 billion on account of strong demand and higher prices of commodities. The growth rate marked the best clip in six months.
The growth in April was significant as compared to March when it grew by 3.1%, which was the slowest in more than a year. Increased growth of industrial production and sales, recovery of prices, and improved profitability in the auto, steel and chemical industries were the primary reasons for the strong performance in April. Notably, the producer price inflation has been much lower (3.4%) in April compared to 6.4% a year before. It has helped the industrial firms to reduce operational costs and improve revenues.
However, investors should note that profit growth for the Chinese industrial sector has slowed from last year’s solid clip. In the first four months of 2017, profits jumped as much as 24.4%. The concerns of slow growth in the Chinese economy made investors jittery in the first four months of 2018. This was on account of tougher pollution controls, holding back of investment projects of cash strapped regional governments and reducing demand for building materials (read: What Lies Ahead For China ETFs?).
Chinese policymakers are taking a balanced approach to make it sure that risky investments are avoided and growth is not too slow. While the Chinese economy grew 6.8% in the first quarter of 2018, economists polled by Reuters expect the growth to slow around 6.5% this year from 6.9% in 2017, hurt by rising borrowing costs.
Still, investors wanting to play the six-month high industrial profit growth can have a look at the following ETFs.
ETFs in focus
Global X China Industrials ETF CHII
The fund investsin stocks that are related to the industrials sector in China and tracks the Solactive China Industrials Index. It has an AUM of $3.1 million and has a daily trade volume of 1240. It has 41 holdings in its basket. The fund has an annual fee of 65 basis points. In terms of sector outlook, Machinery & Equipment, Building & Construction and Transportation hold the maximum weightage with 40.7%, 31% and 24.4% respectively. Individually Sunny Optical, Byd Co and Anhui Co are the top three allocations with 19.5%, 6.7% and 6.1% weightage. The fund has a Zacks ETF Rank #3 (Hold).
Global X China Materials ETF CHIM
The fund seeks to track the Solactive China Materials Index and invests in China’s stocks primarily in the materials sector. The fund comprises 35 holdings and has assets worth $4.3 million in its basket. It has an average daily trade volume of 2000. Among individual holdings, MMG Ltd, Sinopec and Nine Dragons are the top three stocks with none holding more than 6%. Metals & Mining, Chemicals and Building Materials are the top three sector allocations with 59.2%, 27.5% and 13.4% weightage. The fund has a Zacks ETF Rank #2 (Buy) (read: China Had a Strong Start in 2018: ETFs to Buy).