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Will China ETFs Gain on New Round of Monetary Easing?

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The world’s second largest economy is putting efforts to support its ailing economy from the coronavirus pandemic. The People’s Bank of China (PBOC)  trimmed the interest rate on seven-day reverse repurchase agreements to 2.2% from 2.4%, when it was adding 50 billion yuan ($7.1 billion) into the banking system. The move is expected to inject sufficient amount of liquidity in order to aid the real economy, per the central bank.

Meanwhile, it is being anticipated that China will soon deduct the benchmark deposit rate, in order to provide some support to the banks. The country is also expected to issue special sovereign debt, raise its fiscal deficit as a share of gross domestic product and permit local governments to sell more infrastructure bonds. Notably, Ma Jun, a PBOC adviser, said in a statement that “the PBOC doesn’t use its bullets all at once. China still has plenty of room in monetary policy”.

Notably, China’s central bank recently injected $14.3 billion into the financial system, with the offer of one-year medium-term lending facility loans. The PBOC has also trimmed the amount of cash a bank must hold in reserve. The move is likely to inject about 550 billion yuan of liquidity into the financial system (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

China Gains Control on Coronavirus

China seems to have finally gained control over the coronavirus outbreak. The country has been observing a nominal rate of new infected cases transmitted domestically. However, it is still exposed to risks from imported cases. Notably, on Mar 29, China reported one new indigenous COVID-19 case but witnessed 30 new imported cases (read: Should You Buy China ETFs as Coronavirus Cases Wane?).

Current Status of Economy

The recently-released reports revealed the adverse impact of the pandemic on China’s economy with industrial output and retail sales plummeting. China saw a 13.5% year-over-year decline in industrial production in the first two months of 2020 compared with the December 2019 rise of 6.9%. The metric, which measures manufacturing, mining and utilities activities, also compared unfavorably with analysts’ expectations of a decline of 3%. China witnessed a 20.5% decline in retail sales, which is a key gauge of consumption in comparison, with growth of 8% last December.

Moreover, the coronavirus pandemic outside mainland China is a concern as slowing global economic growth might result in waning demand. Also, analysts are estimating a contraction in China’s economy in the first quarter of 2020. Deutsche Bank had noted that the global economy will fall into a coronavirus-fuelled recession in the first half of 2020. China’s economy is projected to shrink 31.7% in the ongoing quarter before rebounding sharply in the next. However, March’s data that makes for about 40% of quarterly economy will play a major role in China’s first-quarter economic growth. Meanwhile, the median forecast for China’s economic growth in the ongoing year has now been lowered to 2.9%, reflecting the slowest pace since 1976.

ETFs in Focus

Against this backdrop, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF (FXI - Free Report) , iShares MSCI China ETF (MCHI - Free Report) , Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR - Free Report) and Invesco Golden Dragon China ETF (PGJ - Free Report) .

FXI

This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the FTSE China 50 Index. It comprises 50 holdings. The fund’s AUM is $4.02 billion and expense ratio is 0.74% (read: ETFs to Suffer as China's Q1 Growth Outlook Gets Gloomier).

MCHI

This fund tracks the MSCI China Index. It comprises 603 holdings. The fund’s AUM is $4.92 billion and expense ratio is 0.59% (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).

ASHR

This fund tracks the CSI 300 Index. It comprises 302 holdings. The fund’s AUM is $1.71 billion and expense ratio is 0.65%.

PGJ

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies headquartered or incorporated in the People’s Republic of China. It holds a basket of 65 stocks. The product has an AUM of $145.3 million and charges 70 basis points in annual fees.

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