Coronavirus blame game fuels exodus from 2 big ETFs focused on China

The S&P 500 fell more than 2%, the Dow lost as much as 600 points and the Nasdaq’s losses from an August record approached 10%.
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Tension between the world’s two largest economies over the coronavirus pandemic drove an exodus from two ETFs tracking Chinese companies.

Traders pulled a record $193 million from KraneShares CSI China Internet Fund (KWEB) on Tuesday, according to data compiled by Bloomberg. The $2.1 billion ETF has giants such as Tencent and Alibaba among its top holdings. Meanwhile, BlackRock’s $3.8 billion iShares China Large-Cap ETF (FXI) saw its biggest drawdown since July.

The renewed friction between Washington and Beijing threatens to undermine a trade deal signed only months ago, further jeopardizing global economic prospects. China has fired back at U.S. Secretary of State Michael Pompeo, saying he has no evidence to back up claims that the virus that causes COVID-19 escaped from a laboratory in the central city of Wuhan. Early sympathy for China’s plight has given way to increased tensions around the world, from the U.S. to Europe and Australia.

“As G-7 nations start to look toward China’s government to place blame on them about the COVID-19 outbreak and its source, sentiment has clearly started to change,” said James Pillow, managing director at Moors & Cabot.

Even some of the industry’s cheapest products “may be overpriced” in that they’re “mirroring a passive index,” an expert says.
May 5

After suffering a drawdown of more than $400 million in April, China-focused ETFs have seen outflows of about $87 million in early May, according to data compiled by Bloomberg. Even after rallying last month, FXI has fallen more than 12% in 2020, while KWEB is down about 2.5%.

Philip Lawlor, FTSE Russell’s managing director of global markets research, said the flows could be from profit-taking and fears that President Trump will maintain his anti-China rhetoric through the 2020 election.

“His deflection strategy is clearly going to be placing all the blame on China and launching an attack on China in terms of economic sanctions,” he said. “The market is aware we are lining up for a confrontational second half of the year.”

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