BlackRock China ETFs Lose Cash As U.S. House Probes Misuse

A set of China-focused funds from BlackRock Inc. saw significant outflows in August as the U.S. House of Representatives investigates the asset management giant for possibly profiting off Chinese military operations.  

On Aug. 1, the U.S. House Select Committee accused BlackRock of profiting from investments in ETFs that backed the Chinese military. The iShares Core MSCI Emerging Markets ETF (IEMG), the iShares MSCI Emerging Markets ETF (EEM), the iShares MSCI China ETF (MCHI), the iShares MSCI China A ETF (CNYA), were all named directly by the House Select Committee on the Chinese Communist Party. The BlackRock China A Opportunities Fund (CHILX) was also mentioned.

“Our review has shown that, as a direct result of decision made by (BlackRock/MSCI), these Americans are now unwittingly funding PRC (People’s Republic of China) companies that develop and build weapons for the People’s Liberation Army,” Chairman Mike Gallagher (R.-Wis.) and Rija Krishnamoorthi (D-Ill.) wrote in the committee’s letter addressed to BlackRock CEO Larry Fink. BlackRock denied any wrongdoing in a statement to the Financial Times. 

China Funds See Outflows 

Four of the funds have seen significant outflows since the house committee announced its accusations, as first reported by the Financial Times. The iShares MSCI Emerging Markets ETF saw a massive $1.9 billion in outflows during August, according to etf.com data.  

The iShares MSCI China A ETF saw outflows of $14.2 million during August, and the BlackRock China A Opportunities Fund bled $17 million.  

Yet the movements may be due to poor fund performance. The iShares MSCI China ETF is down more than 11% since Aug. 1, while the iShares MSCI China A ETF lost nearly 4% and the China A Opportunities Fund dropped roughly 9%.  

Investors are taking money out of China funds and pouring them into Indian funds, etf.com previously reported. 

“I am sure some investors sold shares as a result of the U.S. House Select Committee letters,” Morningstar analyst Bryan Armour said in an interview with etf.com. “The bigger issue is that there are significant cracks appearing in China’s economy.”  

Drops in the funds are also linked to larger macroeconomic conditions. While China has long been a popular pick for investors who look to emerging markets, its economy has slowed and many investors have exited the region. Reuters reports that some economists believe China will struggle to meet its 2023 economic growth target of about 5% without increased government spending. 

Contact Lucy Brewster at [email protected].