Middle School Ants Suffer Losses Amid US-China Conflict

Analysis of Returns for 39 China-Related ETFs Listed on Domestic Stock Market
80% Show Monthly Investment Losses... Some Record Valuation Losses Exceeding 1 Trillion Won
Effect of Chinese Government Stimulus Package Expected Only in Q4

Among China-related exchange-traded funds (ETFs) listed on the domestic stock market, about 80% showed negative monthly investment returns for individual investors. Despite expectations of China's reopening (resumption of economic activities), the effects of China's economic stimulus measures have been minimal, and the US-China conflict has acted as a negative factor, deepening the concerns of middle-class retail investors.

According to financial information provider FnGuide, out of 39 China-related ETFs listed on the domestic stock market, 31 recorded negative monthly individual investor returns. A representative example is Mirae Asset Global Investments' ‘TIGER China Electric Vehicle SOLACTIVE’. As of June 26, the monthly individual investor loss amounted to 1.09 trillion KRW. This ETF, listed in December 2020, includes in its portfolio China's CATL, the world's number one electric vehicle battery manufacturer, and China's electric vehicle company BYD. The fund's assets under management reach 2.7766 trillion KRW. It is also the China-related ETF most heavily net-purchased by individual investors. However, following the recent passage of the US Inflation Reduction Act (IRA), investors have been withdrawing from Chinese electric vehicle-related companies.

Other ETFs with large losses include ‘TIGER China Hang Seng Tech’ (-131.7 billion KRW), ‘KODEX China H Leverage’ (-42 billion KRW), and ‘KODEX China Hang Seng Tech’ (-37.2 billion KRW). Most of these are ETFs related to the Hong Kong stock market.

Although Hong Kong stock market-related ETFs have rebounded this month, individual investors are actually withdrawing. ‘TIGER China Hang Seng Tech Leverage’, which tracks twice the movement of the Hong Kong Hang Seng Tech Index, and ‘KODEX China H Leverage’, which is based on the Hong Kong H Index, recorded gains of 18.31% and 9.91% respectively this month. However, on an annual basis, stock prices have been sluggish, and with the expectation that the Hong Kong stock market rebound may be short-lived, individual investors are pulling out funds. The amount of funds withdrawn by individual investors from these ETFs this month is 3.723 billion KRW and 1.867 billion KRW, respectively.

The poor performance of ETFs investing in China is attributed to disappointing Chinese economic indicators. According to the National Bureau of Statistics of China, May retail sales, a domestic demand indicator, rose 12.7%, below the market expectation of 13.7%. Monthly industrial production increased by 3.5% year-on-year, but the growth momentum slowed. Kim Kyunghwan, a researcher at Hana Securities, analyzed, “After China’s reopening, the resilience of domestic demand recovery and price signals have rapidly deteriorated, raising concerns about a ‘double dip’ and prolonged recession,” adding, “The strength and speed of demand recovery in the first half of the year fell far short of expectations, increasing worries about extended stagnation and entrenched deflation.”

As the effects of China’s reopening remain minimal, the Chinese Ministry of Commerce plans to introduce a policy package to stimulate consumption. However, the effects of the stimulus are expected to appear only in the fourth quarter. Jeon Jonggyu, a researcher at Samsung Securities, said, “The reason the reopening economic recovery momentum has not met market expectations is due to shocks in employment and the housing market,” adding, “The key is the housing market. The recovery speed of China’s housing market is expected to be gradual, centered on completions and transactions in the second half of the year, with effects appearing only in the first half of next year. Therefore, the Chinese economy is expected to return to a stable phase only in the fourth quarter.”

This content was produced with the assistance of AI translation services.