Multibillion dollar exodus hits China ETFs amid Trump tariff war

[SAO PAULO] Investors are dumping exchange-traded funds tracking Chinese stocks at a record pace as the world’s biggest economies face off in an escalating trade war that is set to challenge global growth.

Outflows from US-listed emerging market ETFs that invest across developing nations, as well as those that target specific countries, totalled US$5.57 billion in the week ended Apr 11, the most in a year, according to data compiled by Bloomberg. Of that total, US$3.69 billion came from China.

The US$5.6 billion iShares China Large-Cap ETF recorded US$1.2 billion in outflows last week, while the KraneShares CSI China Internet ETF saw more than US$1 billion in withdrawals and the Xtrackers Harvest CSI 300 China A-Shares ETF recorded US$780 million in redemptions. In each case, the outflows were records. Meanwhile, a popular ex-China fund hasn’t seen inflows since September.

“The combination of tariff escalation and negative speculative rhetoric around Chinese ADRs led to capitulation on China specific ETFs last week,” said Malcolm Dorson, senior portfolio manager at Global X Management. “This could continue unless we see the two sides begin to find some common ground.”

Trade tensions between the world’s biggest economies have whipsawed global markets and stoked concern over global growth this month. Last week, Beijing retaliated against Trump’s latest tariffs by hiking duties on all US goods to 125 per cent, while calling the administration’s actions a “joke.” The White House set 145 per cent levies on Chinese goods.

“If it’s a scenario where the Trump administration maintains very high tariffs on China, it’s clearly negative for China’s growth this year and over the medium term,” said Michael Hirson, head of China Strategy for 22V Research.

While China said it won’t match any further hikes, it reiterated its vow to “fight to the end” with other, unspecified countermeasures. The impact of this escalting trade war will likely begin to materialise from this month.

The escalating trade war and its potential implications on China’s growth is raising questions among investors on which steps will be taken by policymakers to defend the economy. Last week, top leaders from China discussed additional economic stimulus in response to Trump’s tariffs, which could include measures to boost consumer spending, the birth rate and subsidies for some exports.

Still, the scale and timing of new stimulus are yet to be finalised, while questions on whether that will be enough to support the Asian nation remain.

“Part of the calculation is the need to save policy room for what comes down the road,” Hirson said. BLOOMBERG