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Dump Slowdown Fear, Bet on These China ETFs

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China’s economic slowdown has been a concern to many investors of late. However, this should not bar them from investing in China ETFs as Beijing rolled out a key rate reform to lower funding costs for firms in order to help a struggling economy jumpstart.

“The People’s Bank of China (PBOC) said it will improve the mechanism used to establish the loan prime rate (LPR) from this month, in a move to further lower real interest rates for companies as part of broader market reforms,” per the source. LPR quotation reform is equivalent to a guided rate cut, and “is only pushed out by the PBOC at crucial moments,” said Dai Zhifeng, analyst with Zhongtai Securities Co.

Along with other analysts, we too believe that a 17-year low industrial production growth in July led to this move on Aug 16, corroborating the government’s efforts to cater to reforms to boost an ailing economy. Nomura expected growth to slacken to 6.0% in the third and fourth quarters, the lower end of the government’s target range, post industrial growth data (read: China's Industrials Growth at 17-Year Low: ETFs in Focus).

From now onward, banks must fix rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates, the PBOC said, “adding that banks will be barred from setting any implicit floor on lending rates in a coordinated way.”

The news charged up the Chinese market. Below we highlight a few ETFs that could be good buys in the coming days.

Invesco Golden Dragon China ETF PGJ – Up 3.19% on Aug 16

The underlying NASDAQ Golden Dragon China Index currently comprises 38 U.S. exchange-listed stocks of companies that derive a majority of their revenues from the Peoples Republic of China. The fund charges 70 bps in fees (see all Asia-Pacific (Emerging) ETFs here).

Global X MSCI China Consumer Discretionary ETF (CHIQ - Free Report) – Up 3.04% on Aug 16

Low rates should boost higher consumer activities. The underlying MSCI China Consumer Discretionary 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 (read: Wall Street's Best Start Since 1987: Top ETFs of Top Sectors).

Invesco China Technology ETF CQQQ – Up 2.1% on Aug 16

The underlying FTSE China Incl A 25% Technology Capped Index measures and monitors the performance of publicly issued common equity securities of publicly traded companies that are open to foreign ownership and derive the majority of their revenues from the information technology sector in China, Hong Kong and Macau. The fund charges 70 bps in fees.

Invesco China Real Estate ETF TAO– Up 1.64% on Aug 16

Real estate sector benefits from lower rates. The underlying AlphaShares China Real Estate Index measures and monitors the performance of the investable universe of publicly traded companies and REITs deriving most of their revenues from real estate development, management and ownership of property in China or Hong Kong and Macau. The fund charges 70 bps in fees (read: Stimulus Hopes Boost China's Stocks: ETFs Gain the Most).

VanEck Vectors ChinaAMC SME-ChiNext ETF CNXT– Up 1.78% on Aug 16

The underlying SME-ChiNext 100 Index tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. The fund charges 65 bps in fees.

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