Traders dump China, load up on EM bond ETFs as Fed cuts near
- China’s local markets are likely to be avoided for rest of year unless authorities can give clarity on policy, said a Wells Fargo economist
Investors pulled money from exchange-traded funds that buy Chinese stocks last week amid growing concern over the country’s economy, while they loaded up on emerging-market debt as the US Federal Reserve nears the start of its easing cycle.
The KraneShares CSI China Internet Fund, known by the ticker KWEB, saw US$238 million in outflows last week, its biggest weekly outflow since August 2022, as Beijing struggles to foster a rebound in growth.
“Investors have been avoiding China,” said Brendan McKenna, an emerging markets economist and FX strategist at Wells Fargo. “Unless Chinese authorities can give significantly more clarity on what policy will be, China’s local markets are likely to be avoided for the remainder of this year, possibly even longer.”
The iShares China Large-Cap ETF also recorded outflows, with investors withdrawing almost US$55 million last week marking an 11 continuous weeks of redemptions.
As concern over the outlook for China persist, investors are looking for other opportunities to secure returns amid expectations the Federal Reserve will kick-start its easing cycle in September.
The iShares JP Morgan USD Emerging Markets Bond ETF, known by the ticker EMB, recorded US$238 million in inflows last week, while the Janus Henderson Emerging Markets Debt Hard Currency ETF recorded US$157 million of new money coming in.
