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Is China a "Safe Haven" Amid Banking Crisis? ETFs to Invest

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Chinese stock market has gained momentum lately on signs of economic recovery and hopes of more support from the government. The reopening of the economy after the end of the COVID-19 restrictions is likely to bring about a revival in consumer spending, industrial output and investment this year.

This is especially true given the People's Bank of China (PBOC) recently said that it would slash the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points (bps), effective March 27 (read: New ETF (JCHI) Hits Market to Tap China's Growth Prospects).

The move should bolster China equity investing. The PBOC’s move is unique enough as it came at a time when most global central banks are tightening monetary policies. Citigroup is bullish on China Investing as its economists said, “We have long been discussing our view that China can be a major growth hedge this year – if anything, recent global banking stresses perhaps have strengthened this thesis,” as quoted on CNBC.

The recent turmoil happening in the banking sector of the United States and Europe has highlighted China as a “relative safe haven” this year, economists at Citi said in a Thursday note. Added to the positive sentiment is the strong credit growth. Money supply in China expanded at the fastest pace in nearly seven years, as Beijing looked to support a promising economic recovery amid rising global risks.

According to an IMF report, the Chinese economy is expected to grow by 5.2% this year. However, the still-not-steady real estate sector will continue to weigh on the growth prospects, along with the shrinking working-age population in China and declined productivity growth levels.

“China could at least be a relative ‘safe haven’ given its growth premium, financial soundness, policy discipline and the new political economy cycle,” Citi economists said, as quoted on CNBC. Not only Citigroup, Morgan Stanley too turned ‘outright bullish’ on stocks in Asia and emerging markets, as quoted CNBC.

Several China ETFs are undervalued in statues. First Trust China AlphaDEX Fund (FCA - Free Report) , Global X MSCI China Financials ETF (CHIX - Free Report) , iShares MSCI China Small-Cap ETF (ECNS - Free Report) and Rayliant Quantamental China Equity ETF (RAYC - Free Report) have P/E ratios in the range of 4.11X to 7.40X.

Against this backdrop, below we highlight a few China ETFs that have soared last week.

ETFs in Focus

KraneShares CICC China 5G & Semiconductor Index ETF (KFVG - Free Report) – Up 11.1%

The underlying CICC China 5G and Semiconductor Leaders Index tracks the performance of companies engaged in the 5G and semiconductor related businesses, including 5G equipment, semiconductors, electronic components and big data centers. The fund charges 65 bps in fees.

Global X MSCI China Communication Services ETF (CHIC - Free Report) – Up 9.9%

The underlying MSCI China Communication Services 10/50 Index follows a rules-based methodology that is designed to select constituents of the MSCI China Index. The fund charges 65 bps in fees.

KraneShares SSE Star Market 50 Index ETF (KSTR - Free Report) – Up 7.7%

The underlying SSE Science and Technology Innovation Board 50 Index comprises of 50 largest companies listed on the SSE Science and Technology Innovation Board as determined by market capitalization and liquidity. The fund charges 88 bps in fees.

KraneShares Hang Seng TECH Index ETF (KTEC - Free Report) – Up 7.3%

The underlying Hang Seng TECH Index captures the 30 largest companies rapidly growing technology sector in Hong Kong. The fund charges 68 bps in fees.

Global X MSCI China Information Technology ETF (CHIK - Free Report) – Up 6.9%

The underlying MSCI China Information Technology 10/50 Index tracks the performance of companies in the information technology sector in the MSCI China Index. The fund charges 65 bps in fees.

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