Best & Worst Performing China ETFs

[Editor's Note: Join us Wednesday, Dec. 12, 2018 for our free 'Is 2019 the Year for Emerging Markets and China?' webinar.]

What a dismal year it’s been for Chinese stocks. After briefly rallying in January, it’s been a steady drip lower for the nation’s equities, with the benchmark Shanghai Composite Index last trading near a four-year low.

Not even the inclusion of mainland China stocks into the highly popular MSCI Emerging Markets Index earlier this year could stem the decline. A more powerful force was at play.

That force is, of course, the U.S.-China trade war, which kicked off in earnest in 2018. So far this year, $250 billion worth of Chinese goods have been targeted with tariffs as punishment for the country’s alleged unfair trade practices.

At the same time, China has fired back with its own tariffs on $110 billion worth of U.S. goods.

A 90-day truce in the trade war began on Dec. 1, but no one is confident any sort of deal can be struck before March, when U.S. tariffs will automatically become more severe without an accord.

This week’s arrest of Meng Wanzhou, CFO of Chinese telecom giant Huawei and daughter of its founder, has further muddied the waters. Huawei is one of the companies at the forefront of China’s push to become a global technology powerhouse, and Wanzhou’s arrest on possible Iranian sanctions violations is likely to inflame U.S.-China tensions, making a deal harder to come by.

Slowest Growth In 28 Years

Regardless of how the trade war shakes out, it’s already having an impact on China’s economic growth. The country’s gross domestic product (GDP) in the world’s second-largest economy may slow from 6.9% in 2017 to 6.6% in 2018—the slowest rate since 1990—according to the International Monetary Fund.

The drag from tariffs may push growth down even lower in 2019, to 6.2%, the IMF forecasts.

With so much uncertainty in the outlook for China and very little good news to latch on to, China ETFs have mostly tumbled this year. Out of the 52 ETFs listed on ETF.com’s China channel, a mere five of them are in the green for the year as of Dec. 5. The rest are down, with year-to-date losses as high as 53%.

Any ETF betting on mainland China A-shares, in particular, has been hit hard, including the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), down 23%.

Tech-focused China ETFs, such as the Invesco China Technology ETF (CQQQ) and the leveraged Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB), are also among the worst performers.

Worst-Performing China ETFs Of 2018

Note: Data measures total return for the year-to-date period through Dec. 5.

Handful Of Winners

On the other side of the ledger are a handful of China-focused ETFs that somehow find themselves with gains for this year.

Two of those aren’t surprising; the Direxion Daily CSI 300 China A Shares Bear 1X Shares (CHAD) and the ProShares Short FTSE China 50 (YXI) are inverse ETFs. They are supposed to rise when Chinese stocks fall, and that’s exactly what they’ve done.

The only long China equity ETF to scrounge up a positive return this year is the Global X China Energy ETF (CHIE). Its focus on Chinese energy companies netted it a near-double-digit return in 2018. CHIE holds everything from oil producers to natural gas producers to coal producers to refiners.

Another China fund to see gains this year is the VanEck Vectors ChinaAMC China Bond ETF (CBON), which gained 2% year-to-date. China government bonds are the best-performing sovereign bonds this year, according to Bloomberg, thanks to safe-haven inflows and incremental demand from foreign investors.

Finally, the Market Vectors Chinese Renminbi/USD ETN (CNY), which tracks China’s currency, rounds out the list of top-performing China ETFs—but its positive return is only an illusion. The illiquid ETN eked out a gain of 0.8% this year on a price basis, but actually shed 2.9% in terms of net asset value as the yuan slipped versus the U.S. dollar.

Top-Performing China ETFs Of 2018

Note: Data measures total return for the year-to-date period through Dec. 5.

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2