ETF Outflows Biggest in World on Economy: China Overnight

Photographer: Nelson Ching/Bloomberg

An employee in a textiles factory in Shaoxing, Zhejiang province, China. Close

An employee in a textiles factory in Shaoxing, Zhejiang province, China.

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Photographer: Nelson Ching/Bloomberg

An employee in a textiles factory in Shaoxing, Zhejiang province, China.

Exchange-traded funds focused on China are posting the world’s biggest outflows amid concern economic growth is slowing.

Withdrawals from U.S.-based Chinese ETFs totaled $87.5 million March 10, the most among 46 nations, bringing this year’s redemption to $380.7 million, according to data compiled by Bloomberg. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., fell 1.6 percent to $33.90 yesterday. The Bloomberg China-US Equity Index of the most-traded stocks in the U.S. dropped 2 percent to 99.60, led by Vipshop Holdings Ltd. (VIPS)

Official data over the weekend showed the steepest slide in exports since 2009 and the slowest inflation in 13 months, highlighting the challenges for Premier Li Keqiang in achieving this year’s economic-growth target of 7.5 percent. China had its first onshore bond default after Shanghai Chaori Solar Energy Science & Technology Co., a solar-panel maker, said last week it would fail to pay interest on notes due March 2017.

“Investors are pulling out of financial markets where there’s an economic slowdown and a lot of uncertainties,” Dave Lutz, the head of ETF trading and strategy at Stifel Nicolaus & Co. in Baltimore, said yesterday. “The outflow of capital from China will not end until investors stop seeing all the headlines about China indicating the country’s growth is faltering.”

First Default

Withdrawals from Chinese ETFs accounted for 70 percent of the 125.7-million net outflow from emerging markets on March 10, data compiled by Bloomberg show. Redemptions accelerated in March as overseas shipments dropped 18.1 percent in the biggest decline since August 2009, compared with analysts’ median estimate for a 7.5 percent increase.

Investor scrutiny of China’s onshore bond market is mounting after Chaori Solar said March 4 it would only be able to pay 4 million yuan ($653,000) of an 89.8 million yuan coupon payment due yesterday. Chaori Solar’s failure to pay has stoked speculation more companies may miss debt deadlines also.

Baoding Tianwei Baobian Electric Co.’s bonds and shares were suspended from trading yesterday after the Chinese electrical equipment maker said it reported losses for a second year running.

Debt Risks

China’s leadership, which is aiming to support growth while clamping down on debt risks and pollution, announced the 7.5 percent goal for 2014 gross domestic product expansion last week, a pace unchanged from last year. The economy expanded 7.7 percent in 2013, the same pace as in 2012.

Yingli Green Energy Holding Co. (YGE), the world’s biggest solar-panel maker, retreated 6.1 percent to $5.99 in its biggest decline in six weeks. Vipshop, the Guangzhou, China-based online fashion retailer, dropped 9.3 percent to $143.74, the most since August.

The Shanghai Composite Index rose 0.1 percent to 2,001.16 yesterday after changing directions at least 11 times. The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong dropped 0.2 percent to 9,520.26.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Tal Barak Harif at tbarak@bloomberg.net Rita Nazareth, Brendan Walsh

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