A version of this article previously ran in Financial Advisor IQ's sister publication, Ignites.
Even domestic equity ETFs will be hard-pressed to avoid fallout from the Chinese government's crackdown on private-sector companies, the Financial Times reports.
Up to a quarter of the revenues generated by U.S. stock ETFs' portfolio companies derive from sales to China, according to new data from Bank of America.
“What happens in China doesn’t stay in China,” the report reads.
Of the S&P 500's constituents, 79 generate at least 5% of their revenues from China — the most dependent being Wynn Resorts, with 70% of revenues from China, followed by Las Vegas Sands, with 63%, and Qualcomm, with 60%.
Globally, 303 listed companies, with total market capitalization in excess of $19 trillion, draw at least 5% of their revenue from China, the data shows.
A separate analysis by Jared Woodard, head of Bank of America's research investment committee, shows 138 of the 251 ETFs that the bank covers generated at least 3% of their underlying revenue from China.
Among the most exposed U.S. stock ETFs are the $7.2 billion iShares Semiconductor ETF, whose constituents draw 27.9% of their revenues from China, followed by the $5.9 billion VanEck Semiconductor ETF, with 25.8%; the $286.1 million VanEck Low Carbon Energy ETF, with 19.1; and the $3.7 billion First Trust Nasdaq 100 Technology Sector Index, with 16.6%.
The risks of investing in China have appeared to escalate rapidly over the past year in the wake of dramatic interventions by the government in Beijing. For example, the government derailed the public float of tech company Ant Group, slapped Ant parent Alibaba with a punishing antitrust fine, curbed new-customer growth at ride-share platform Didi Global and effectively shut down the private tutoring services industry.
Most recently, Beijing has sent shockwaves through global markets by halting the flow of cheap credit into the real estate market, precipitating the near collapse of giant property developer China Evergrande.
“A lot of US companies have built up quite a lot of dependence on revenues from China,” Woodard told the FT. “Investors may not be aware. People know the mandates of the funds they buy usually, but what they might not know is that companies around the world have become increasingly dependent on China.”