China ETFs See Outflows As Trump Comments Trigger Volatility

Exchange-traded funds tracking China stocks recorded outflows for the second consecutive week as Donald Trump first stoked, then tried to calm market jitters over a trade dispute with China.

The $1.7 billion Xtrackers Harvest CSI 300 China A-Shares ETF recorded $391 million in outflows last week, its largest withdrawal since April. The iShares China Large-Cap ETF and iShares MSCI China ETF also saw withdrawals of about $78 million and $51 million, respectively.

Market sentiment was shaken a little over a week ago after President Donald Trump threatened to cancel his first in-person meeting with Chinese President Xi Jinping since returning to the White House. The warning came in response to Beijing’s pledge to tighten control over rare-earth elements. Trump also announced that a 100% import surtax on Chinese goods would take effect Nov. 1 — a move that could jeopardize the trade truce set to expire on Nov. 10 unless extended.

Since then, tensions have gradually eased, with Trump saying he has a good relationship with the Chinese leader. He stated in an interview with Fox News that his threatened levy on Chinese goods was “not sustainable” though “it could stand.”

While most withdrawals were recorded at the start of the week, it shows how uncertain traders remain over the upcoming trade talks set to kickoff at the end of this week in Malaysia. Those will prepare the way for a sitdown to happen in South Korea later this month.

The recent volatility across markets may have prompted some investors to take profits and trim risk exposure before trade talks take place, according to Todd Sohn, senior ETF analyst at Strategas Securities. 

“China is so volatile that market participants need to be nimble with their allocations there,” he said. There is always the risk that “geopolitical volatility will reignite investor anxiety.”

Elsewhere, outflows from US-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $108.6 million in the week ended Oct. 17, compared with losses of $31.5 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $26.1 billion.

• Stock ETFs contracted by $209.5 million.

• Bond funds rose by $100.9 million.

• Total assets rose to $451.5 billion from $442.2 billion.

• The MSCI Emerging Markets Index closed down 0.3 percent from the previous week at 1,361.6 points.

• China/Hong Kong had the biggest outflow, of $216.3 million, following withdrawals from DWS Xtrackers’ Xtrackers Harvest CSI 300 China A-Shares.

• South Korea had the biggest inflow, of $64.9 million, led by iShares MSCI South Korea.