The Chinese economy has shown steady expansion due primarily to trade. According to Xinhua News Agency, China’s foreign trade is up 18.5% year on year. For China’s largest trading partner, the European Union, it has surged to 17.1%. Exports, including machinery, electronics, labor-focused items, have also expanded during 2017.
Expansion has increased China’s trade, but not in all areas. According to Xinhua, imports decreased for the month of July. China has also been met with declines in the export of steel. Slowing in these areas has been attributed to the strengthening of the yuan in recent weeks, according to the Chinese Academy of International Trade and Economic Cooperation.
Xinhua notes the interest parity rate of the yuan rose to 6.7132 versus the U.S. dollar on August 4, 2017—its highest level since October 2016. Overall, the yuan has been heading up due to the Chinese economy’s expansion and weakening U.S. dollar.
Sectors: The leading Sector Benchmark ETFs exhibited shifts over the past week, but Technology continued to lead. Financials, Real Estate, Materials, and Health Care declined. Industrials and Utilities improved, though Energy is still at the bottom of the pack. The spread between the highest and lowest sectors increased from 22 to 34. Utilities, Industrials, and Telecom increased the most for the week.
Overall, momentum scores decreased from last week, and the overall spread between maximum and minimum ranking increased.
Specific concerns for certain sectors may be affecting their rank. The overall lower price of oil has caused the Energy sector (typically cyclical) to fall near the bottom of rankings. Health Care is still facing increased political uncertainty as the administration threatens to withhold payments from insurance companies. This may have caused the sector to drop more rapidly than typical market movement.
Factors: The leading Factor Benchmark ETFs are a bit more organized than sectors, with Momentum and Growth near the top and Small Size and Dividend Growth near the bottom. Low Volatility also outranks Fundamental, which suggests investors may expect the Low Volatility factor to have higher risk-adjusted returns compared to the cash flows, earnings, book value, etc. In sectors, the overall momentum ranking for all factors has decreased from last week. The spread in values has increased from 17 to 24. This suggests the top-ranked factor, Momentum, is growing and the bottom-ranked factors from last week are slowing down.
Global: In the leading Global Benchmark ETFs, the message is consistent with last week’s rankings: risk is on. The riskiest global markets and emerging markets are at the top of the ranking. China, at the very top, increased its value from 52 to 54. The top-three ranked geographic areas are all in emerging markets, with the bottom ranks populated by developed countries. Canada and the Pacific fell the most, five points, while the US and World Equity fell one point each. The market shrugged off news about U.S. tensions with North Korea, and China continues to be a desirable destination for investor funds. However, it appears that developed markets are not retaining the same appeal. Positive momentum has decreased for most of these locations. Compared to last week, the overall momentum change for the top emerging market went up, especially with Latin America, which increased five points. The overall impression of the global market momentum is mixed but leans slightly toward slowing down.
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