China ETFs Buck the Trend, Strengthening on Government Aid
This article was originally published on ETFTrends.com.
Chinese markets and country-specific ETFs were among the few areas in the green on Monday after Beijing and regulators unveiled a number of measures to support the markets.
The Xtrackers CSI 300 China A-Shares ETF (ASHR) rose 1.1% on Monday.
The People's Bank of China removed its pledge to allow "market supply and demand to play a bigger role in deciding the exchange rate" from a section on future tasks in its third-quarter monetary report, taking steps to ensure the yuan currency is stable at reasonable and balanced levels, Bloomberg reports.
The change in wording comes in face of a yuan sell-off that has pushed the currency to its weakest level against the dollar in more than a decade. The yuan depreciated 9% over the past six months and was trading at around CNY6.9636 against the dollar Monday.
"The PBOC is no longer comfortable with the yuan’s rapid depreciation and may think there’s been overshooting of the exchange rate," Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA, told Bloomberg. "The central bank may take more measures to stabilize the yuan rather than encourage more flexibility. The currency won’t breach 7 any time soon."
Beijing also increased support for private enterprises over the weekend through measures including a simplified process for listed companies to buy back shares, tax cuts of larger scale and more significant fee reduction on companies, Reuters reports.
Analysts at Chengdu-based Chuancai Securities argued that risk appetite is on the rise in the Chinese equity market in response to the introduction of the new policy measures.
“The A-share market is entering its latter phase of corrective rebound,” the analysts said in a note. “We will focus on high quality growth stocks in artificial intelligence, 5G, cloud computing and chipmakers, and blue chips in the financial, real estate and pharmaceutical sectors.”
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