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China’s property woes and U.S. sanctions have hit some cities hard

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BEIJING — China’s property struggles and U.S. sanctions have significantly affected some of its cities, even as others benefit from Beijing’s tech push, Milken Institute’s best performing cities China index showed Tuesday.

Since 2015, the index has studied China’s large- and mid-sized cities for their economic vibrancy and growth prospects. The latest version generally compares data for 2023 with that of 2021. Last year, the institute did not publish a report due to a reassessment of its methodology.

Hangzhou, capital of the eastern Zhejiang province and home to Alibaba and other tech companies, ranked first in this year’s rankings.

While other cities, such as Zhuhai, once a “rising star,” dropped in the rankings due to the slump in real estate.

The city, in the southern province of Guangdong near Hong Kong, fell 32 places from the previous index published in 2022 to 157th place.” Suddenly no one bought houses.

Builders didn’t have much money to complete their projects,” Perry Wong, managing director of research at the institute, told reporters in Mandarin, translated by CNBC.

Property and related sectors once accounted for more than a quarter of China’s gross domestic product. But in 2020, Chinese authorities started cracking down on real estate developers’ high reliance on debt.

Wong added that real estate dragged down growth for several of the main cities in that region, except for Dongguan. The city of factories, home to Huawei’s sprawling European-style campus, was instead hit by U.S. sanctions. Dongguan dropped 15 places in the Milken index rankings to 199th place.

There are 217 cities in the index. While the nearby metropolis of Shenzhen went up in rankings, the city landed in 9th place, behind Beijing. A majority of the Chinese companies initially blacklisted by the U.S. were based in Shenzhen or Beijing, Wong pointed out in an interview with CNBC.

“Zhuhai is an extremely good place to do service jobs, to do even production jobs, high-end production jobs in biotech,” he said. “So [excluding the real estate impact] it should have a pretty promising future.”

Another city affected by the geopolitical drag on exports is Zhengzhou, capital of the Henan province and home to iPhone manufacturer Foxconn. Zhengzhou fell to 22nd place, down from 3rd.

Historically, Wong pointed out, having control of Zhengzhou, Hefei, and Wuhan have been critical to ensuring control of the country.

From an economic perspective, Hefei, in the Anhui province, and Wuhan, in Central China’s Hubei province, fared better in the latest index.

Wuhan surged by nearly 30 places to second, while Hefei remained among the top ten. Wong attributed this to Wuhan’s efforts to keep factories running during the pandemic, allowing the city to rebound quickly, while a university in Hefei received direct government support for technological development.

As for Hangzhou’s success, the institute’s research pointed to the city’s growth as a hub for e-commerce, manufacturing and finance.

But asked on CNBC’s “Squawk Box Asia” if Hangzhou’s success could be replicated, Wong said it would be difficult, partly due to the outperformance of the local property sector that’s increased living costs.

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T. Rowe Price likes stock picking now

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One of the largest active ETF managers on leveraging fund tactics in new ways

It appears T. Rowe Price is benefitting from the record growth in actively managed exchange traded funds.

Tim Coyne, the firm’s head of ETFs, reports the firm is seeing significant growth in the area — listing the T. Rowe Price Capital Appreciation Equity ETF (TCAF) and T. Rowe Price U.S. Equity Research ETF (TSPA) as two established strategies that can satisfy investor demand.

“I think having that professionally managed portfolio is really beneficial to clients,” Coyne told CNBC’s “ETF Edge” this week. “We’re seeing just… greater volatility [and] uncertainty across both the equity and fixed income markets.

According to Coyne, the T. Rowe Price Capital Appreciation Equity ETF suits investors who are looking for long-term growth.

“The objective of the fund is to outperform the S&P 500 with lower volatility and greater tax efficiency,” he said. “It’s also a more concentrated portfolio, typically holding around a hundred names.”

As of April 24, the fund’s top holdings include Microsoft, Amazon, and Apple according to the T. Rowe Price website. But it’s not all Big Tech. The ETF also features smaller positions in companies like Becton Dickinson and Roper Technologies.

The T. Rowe Price Capital Appreciation Equity ETF is down about 5% so far this year while the S&P 500 is off about 7% However, the ETF is up close to 8% over the past year — roughly identical to the S&P 500’s performance.

Coyne notes the T. Rowe Price U.S. Equity Research ETF follows a similar strategy, but with a heavier weighting in top tech stocks.

“This is more of a large-cap growth product [T Rowe Price U.S. Equity Research ETF],” he said. “There are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research is going into the stock selection.”

Both the T. Rowe Price U.S. Equity Research ETF and S&P 500 are down around 7% since the beginning of the year. Meanwhile, the fund is up almost 9% over the past year. That’s less than one percent better than the S&P 500’s performance.

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T. Rowe Price U.S. Equity Research ETF vs. S&P 500

‘Some form of bear market’

Strategas Securities’ Todd Sohn thinks investment demand for active managers will continue to be strong.

“This is the type of the environment where it [active management] can actually shine,” the firm’s senior ETF and technical strategist said. “We are in some form of bear market. This is where the active manager really can come into hand and offer their solution they are doing right.”

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