Many ETFs have had a torrid year, as financial markets recoil amid a series of headwinds. The impact of the Russia-Ukraine war has dominated, while inflation has sky-rocketed. In the UK, the mini-budget caused chaos in financial markets, and in Asia, escalating tensions between the US and China have heaped pressure on the latter’s tech sector.
A number of exchange-traded funds (ETFs) have had a torrid year, as financial markets have suffered amid a series of severe and persistent headwinds through 2022.
The Russia-Ukraine war and its wide-reaching economic impact has dominated the headlines, along with sky-rocketing inflation which has led central banks globally to hike interest rates. In the UK, Liz Truss’s short stint as UK prime minister served only to add fuel to the fire, with the widely derided mini-budget causing chaos in financial markets. And in Asia, escalating tensions between the US and China have heaped pressure on China’s tech sector.
We take a look at some of the ETFs that have suffered as a result.
KWEB ETF heads China tech fallers as headwinds intensify
China tech stocks have had it especially tough over recent times, as they face up to greater scrutiny and sanctions both at home and from the US.
President Joe Biden has targeted China’s tech industry, announcing far-reaching export controls last month, making it extremely difficult for Chinese companies to obtain and manufacture advanced computer chips. Recent confirmation of a third five-year term in office for Communist party leader, President Xi Jinping, has only added to the gloom.
China tech stocks and ETFs have borne the brunt: Alibaba [9988.HK], Baidu [9888.HK], JD.com [9628.HK], Meituan [3690.HK] and Tencent [0700.HK] were among China’s big tech giants which plunged more than 10% on Monday 24 October following XI Jinping’s victory. China’s tech-focused ETFs have also been hammered.
The KraneShares CSI China Internet UCITS ETF [KWEB] dropped from $24.64 at the start of last month, to a month low of $17.22 on 24 October – a fall of 30.11%. With KWEB’s top four holdings being Alibaba, Tencent, Meituan, and JD.com, it’s little wonder the ETF was sold off.
Another factor constraining Chinese companies is the country’s zero-Covid lockdown policy, which has hit consumer spending; however unconfirmed reports of an easing of these rules early next year boosted Chinese stocks last week – Hong Kong’s Hang Seng China Enterprises index leapt 6% on Friday, while the KWEB ETF bounced back, rising 19.61% through last week to close at $22.81. Overall though, KWEB is still down 56.51% from its 52-week high of November 2021.
UK gilts plunge sends GLTL ETF spiralling
September’s mini-budget in the UK was another seismic event which hit the country’s economy, as the package of unfunded tax cuts prompted a collapse in UK gilt prices, while sterling plunged versus the US dollar. The Bank of England was forced to come to the rescue of pension funds by promising to buy up to £65bn of government debt, as long-dated bond rates soared following former chancellor Kwasi Kwarteng’s short-lived budget.
Unsurprisingly, the turmoil had an adverse effect on related ETFs. The SPDR Bloomberg 15+ Year Gilt UCITS ETF [GLTL.L] plummeted -26.76% from the start of September to a 52-week closing low of 36.60p on 27 September, and despite a recovery since then, it remains 43.94% weaker versus its 9 December 2021 52-week high of 79.25p.
Crypto and blockchain ETFs slump
The cryptocurrency and blockchain sector has had a tumultuous year so far, and the performance of crypto and blockchain stocks and ETFs has suffered as a result. Crypto ETFs account for “five of the worst seven debuts in the history of the ETF industry”, according to the Financial Times. The performance of many of these funds hasn’t been helped by the fact many launched as prices peaked in 2021, ahead of the perfect storm of macroeconomic events which have decimated markets in 2022.
The worst-performing crypto ETF in 2022, according to ETF Stream, is the VanEck Crypto and Blockchain Innovators UCITS ETF [DAGB.L], which has plummeted 72.89% year-to-date. There’s been no escape in the digital currency arena, with the ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIP) sliding 63.21%. And the ProShares Bitcoin Strategy ETF [BITO], the world’s first ETF tracking bitcoin’s price action, is down 70% since its highly-anticipated October 2021 launch, reports the FT, losing $1.2bn of investors’ money.
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