A China ETF to avoid: -27% in 12 months

China is in a difficult economic moment and a lot of attention has focused on products that replicate the stock performance of this country.
In the world of ETFs, there is one instrument in particular that is attracting negative market attention.
In a period of just 12 months, this ETF suffered a significant decline, losing as much as 27.93% of its value.
In the following article, we will explore the reasons behind this dramatic decline and analyze why investors should pay close attention to this China-linked ETF.
China in Decline: The Three Great Economic Challenges The change in China's economic landscape is undeniable and has major implications for both the nation itself and the global economic order.
The transition from the "zero Covid" policy early last year was seen as a sign of a return to economic normality, but instead China has begun to experience a series of challenges that threaten its economic growth.
One of the most worrying signs is represented by the disappointing GDP growth, which remained below the expectations of observers and economists.
This underperformance was further exacerbated by the deflation that hit the country starting in July, indicating excessively weak domestic demand.
The heart of China's current economic crisis lies in three main factors: 1.
First, the real estate sector, an economic pillar that accounts for about a quarter of the country's GDP, has been severely affected.
The difficulties in this sector have been a known story for years, but they have worsened recently, with the collapse of giants such as Evergrande, which revealed a mountain of debt that the company was unable to manage.
The domino effect highlighted how indebted many other Chinese real estate firms were, crippling the sector and causing uncertainty about project construction and future investments.
China is now facing a saturated property market and excessive property speculation, fueling fears of a possible property bubble set to burst.
2.
A second factor is the weakness of domestic consumption.
Economic uncertainty has led Chinese families and companies to hold onto their funds, slowing growth in consumption and investment.
This negative dynamic has further weakened the economic environment, with a vicious cycle that sees companies not hiring or firing people, fueling general distrust in the economic future.
3.
The third critical element concerns the decline in Chinese exports.
China, formerly known as "the factory of the world," has seen a decline in its dominant position due to restrictive statist policies and the ongoing trade war with the United States.
These factors, along with structural challenges, have contributed to China's economic slowdown.
The deeper and more structural challenges faced by China include a rapidly aging population and an accelerated demographic transition.
This aging population has significant economic implications, including a shrinking workforce, decreased consumption, declining household savings, and rising Social Security expenditures.
China must address this demographic challenge with a series of reforms, including market liberalization, protection of intellectual property rights and industrial innovation.
The situation also requires a balanced approach to pension fund management, with an increase in the retirement age and uniform pension standards for all groups of pensioners.
Let's now look at the China ETF which has lost almost 28% in the last 12 months.
read also What are buyback ETFs? Here's how to invest and the best opportunities Global X China Clean Energy UCITS ETF USD Accumulating The Global through replication of the Solactive China Clean Energy index.
This index selects Chinese and Hong Kong companies active in the renewable energy industry.
The overall cost of the ETF, known as the total expense ratio (TER), is 0.68% per year, quite high for a passively managed fund.
While not the most cost competitive, it is important to note that this ETF is the only vehicle available that tracks the Solactive China Clean Energy Index.
The ETF adopts a full physical replication strategy, which involves purchasing all securities included in the underlying index in order to replicate their performance.
This helps ensure a close correlation between the ETF and the benchmark index.
Accumulates the dividends generated by the companies in the underlying index and reinvests them in the ETF.
This approach can be advantageous for long-term growth-oriented investors.
At the moment, the ETF has significantly reduced assets under management, of around 2 million euros, therefore classifying it as a very small product.
It was launched on January 18, 2022 and is domiciled in Ireland.
ETF risks and volatility Investments in the Global X China Clean Energy UCITS ETF USD Accumulating ETF require a thoughtful assessment of past performance and associated risks.
Over the past year, the ETF has posted a significant loss of 27.93%, highlighting the challenges and uncertainties that the renewable energy sector in China and Hong Kong is facing.
This negative performance has also been reflected in short-term returns, with a decline of 29.57% in the current year and a decline of 27.33% over six months.
These data reflect considerable volatility of the ETF, with an annual value of 21.15%, which means that investors must be prepared to face significant price fluctuations.
Importantly, China's renewable energy sector has been subject to several challenges, including legislative and regulatory changes, as well as international competition.
Furthermore, the Global This makes it subject to a potential lack of liquidity, which could further affect the ETF's volatility and efficiency.
From a risk management perspective, the ETF adopts a long-only strategy, meaning investors rely on the growth expectations of companies in the underlying index.
Additionally, the ETF is exposed to unhedged currency risk, as it is denominated in USD, while many of the underlying companies may operate in other currencies.
This may lead to a further element of uncertainty for investors.
read also The best S&P500 ETFs for investing in the American market Disclaimer The information and considerations contained in this article should not be used as the sole and main support on the basis of which to make investment decisions.
The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.