Emerging Markets ETFs Slide on Chinese Manufacturing Data

Joel Anderson  |

Emerging market equities were down sharply on Thursday, creating a losing session in the first day of the new year and pulling down the iShares MSCI Emerging Markets Index ETF (EEM) over 3.5 percent and the Vanguard FTSE Emerging Markets ETF (VWO) losing just under 3.5 percent.

China Falls on Manufacturing Data

News that a shrinking export market that appears to be hurting Chinese manufacturers was likely the culprit for much of the decline. The Purchasing Managers’ Index (PMI) from HSBC Holdings Plc and Markit Economics released Wednesday fell from 50.8 in November to 50.5 in December, making it the worst month for manufacturing in China in four months. The statistics bureau and logistics federation also released their own data showing a contraction from 51.4 to 51 in December.

While any number over 50 indicates growth, the shrinking rate shows weakness among Chinese manufacturers. The driving factor appears to be slowing orders. A Bloomberg poll of 29 economists gave a median prediction of 51.2, showing manufacturing is clearly advancing much slower than expected.

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The iShares FTSE China 25 Index Fund (FXI) lost over 3 percent, the iShares MSCI Hong Kong Index Fund (EWH) shed over 1 percent, and the iShares MSCI China Index Fund (MCHI) dropped almost 3 percent.

“PMI data in China and political turmoil in Turkey, none of this is conducive to create good sentiment toward emerging markets,” Barclay’s (BCS) head of emerging-market research Christian Keller told Bloomberg by phone. “Today it is mainly China. People are a bit disappointed.”

Brazil Hit Harder

Feeling the effects of China’s slowing manufacturing was also Brazil stocks, as the Ibovespa stock exchange shed over 2.25 percent by late afternoon on Thursday. Brazil and China remain major trade partners, with Brazil exporting a great deal of raw material to China.

"Despite the China PMI being above 50, which indicates growth, it came in below expectations, frustrating commodities stocks abroad and weighing on commodities prices," said Sao Paolo-based SLW Corretora’s chief strategist, Pedro Galdi.

The major Brazil stocks ETF, the iShares MSCI Brazil Index ETF ($EWZ) plunged over 3 percent.





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