Skip to content
Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

ETFs’ RETURNS DEPEND INCREASINGLY ON CHINA’S PERFORMANCE

Exchange-traded funds (ETFs) focused on U.S. stocks have a hidden vulnerability: as much as 25 percent of the revenues of the U.S. companies the funds own are dependent on China’s economic performance, according to a Bank of America (BoA) analysis.
“What happens in China doesn’t stay in China,” the report said, noting that Beijing’s crackdown on its domestic tech, financial, and property markets ripple through U.S. equities.
In 2010, there was no correlation between the U.S. and China in growth in earnings per share, the bank’s report said, but now the correlation is 90 percent: nine times out of ten, when earnings rise or fall in Chinese equities, U.S. stocks do the same.
The connection is more important to U.S. stock prices than growth in the U.S. GDP, according to the bank.
In the past decade, 30 percent of the world’s GDP growth has come from China and 21 percent from the U.S., BoA noted.
During the same period, 80 percent of the S&P 500’s margin expansion has come from global exposure, not strictly U.S. growth, the study found.
Wynn Resorts’ revenue is 70-percent dependent on China, with Macau’s casinos; chip companies Qualcomm and Texas Instruments 60 and 55 percent, respectively; and laser company IPG Photonics at 42 percent.
At least 79 of the Fortune 500 companies have no less than a 5-percent dependence on revenue from China, BoA said. Worldwide, the figure rises to 303 companies with a collective market capitalization exceeding $19 trillion.
Of the 251 ETFs the bank’s research branch follows, 138 derive at least 3 percent of their revenue from China, the Financial Times reported.
“A lot of U.S. companies have built up quite a lot of dependence on revenues from China,” Jared Woodard, head of BoA’s research division, said to the FT.
“Investors might not be aware that companies around the world have become increasingly dependent on China,” he added.
Emerging-market ETFs were even more China-dependent, with anywhere from 25 to 45 percent of revenue of the companies in which they own stock relying on China’s performance, the FT said.
TRENDPOST: China has become the world’s manufacturing center and is on track to become the world’s largest economy by 2035 at the latest. For that reason, China’s financial performance has woven itself throughout the global economy. Therefore, equity and investment markets will not be able to escape dependence on China’s ups and downs.

Comments are closed.