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Stimulus Hopes Boost China's Stocks: ETFs Gain the Most

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Trade war with the United States made this year appalling for Chinese stocks. iShares China Large-Cap ETF (FXI - Free Report) has lost about 17.4% in the year-to-date frame (as of Oct 21, 2018) compared with 2.7% gains for the S&P 500.

The Shanghai Composite is the world’s worst performing global benchmark this year, sliding below 2,500 points last week for the first time in almost four years. China’s equity market has shed more than $3 trillion in value since January, per sources.

Trade war concerns between the United States and China as well as faster Fed policy tightening and slowing growth have played foul for Chinese equities. But to shore up the market and economy, Chinese authorities have announced simulative plans of late, which is why Chinese stocks surged the maximum in more than two years. The Shanghai composite advanced 4.17% in the morning session of Monday, per CNBC.

 

Behind the Rally

Since China came up with 6.5% growth in the third quarter, it’s feeblest since 2009 and shy of 6.6% expectations, over the weekend, President Xi Jinping stressed on “unwavering” support for private firms, while the country’s stock exchanges remained steadfast to manage share-pledge risks. China also released its widely expected plan to lower personal income taxes.

The stocks started rallying from Friday on hopes of simulative measures.  Efforts by authorities to lower stock-pledge risks should bring stability to the equity market and help boost valuations for Chinese brokers, per Goldman Sachs Group Inc, as quoted on the source.

There is yet another good news for Chinese equities. Almost a month ago, MSCI Inc. announced that it is considering quadrupling the weighting of Chinese big-caps to 20% in its global benchmarks. That would take place in two stages in 2019. MSCI also proposed inclusion of mid-caps from 2020 and shares listed on Shenzhen's start-up board ChiNext from next year.

Notably, MSCI added China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index in June 2018. FTSE Russell also announced the addition of mainland shares in its flagship indexes from June next year. A Reuters’ survey showed Chinese fund managers increased their suggested equity exposure to a seven-month high in September.

If this was not enough, the People's Bank of China said on Oct 7 that it would cut the reserve requirement ratio (RRR) for the fourth time this year. The latest cut will infuse nearly $109.2 billion cash into the banking system (read: China Cuts Rate for Fourth Time: ETFs in Focus).

ETFs in Focus

Against this backdrop, we highlight a few China ETFs that rose the maximum on Oct 19 and could be on the way to log more gains this week.

Xtrackers Harvest CSI 300 China A ETF (ASHR - Free Report) – Up 3.81% on Oct 19

CSOP FTSE China A50 ETF (AFTY - Free Report) – Up 3.69%

KraneShares Bosera MSCI China A ETF (KBA - Free Report) – Up 3.57%

KraneShares MSCI All China Health Care ETF (KURE - Free Report) – Up 3.02%

iShares MSCI China A ETF (CNYA - Free Report) – Up 2.90%

iShares China Large-Cap ETF (FXI - Free Report) – Up 2.15%

Invesco China Real Estate ETF (TAO - Free Report) – Up 2.00%

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