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China ETFs Climb as Central Bank Backs Stronger Yuan Currency

This article was originally published on ETFTrends.com.

Chinese stocks rallied Monday, with technology-related ETFs taking the lead, after the People's Bank of China signaled it would take a more proactive approach to combating a stronger U.S. dollar and uncertainty surrounding the trade war between Washington D.C. and Beijing.

On Monday, the technology-heavy PowerShares Golden Dragon China Portfolio (PGJ) and KraneShares CSI China Internet Fund (KWEB) gained 3.0% each. Additionally, the broader iShares China Large-Cap ETF (FXI) added 1.9% and Xtrackers CSI 300 China A-Shares ETF (NYSEArca: ASHR ) , which tracks mainland Chinese A-shares, increased 2.2%, with both testing their short-term resistance at the 50-day simple moving average.

The China-related ETFs strengthened on a more optimistic outlook on the yuan currency. Beginning this month, the central bank resumed using an adjustment in the daily pricing of the currency against the U.S. dollar, known as the counter-cyclical factor, to diminish the bias toward a weaker yuan, Bloomberg reports.

The PBOC stated that the factor “plays a positive role in keeping the yuan rate at a reasonable equilibrium level.”

"The central bank’s statement to support the yuan has boosted market sentiment, which is the main reason for the rise of the stock market today," Kang Chongli, an analyst with Lianxun Securities Co., told Bloomberg.

China Yuan & U.S. Dollar

The new round of adjustments signaled that China will be supporting the yuan after the recent declines - the yuan depreciated 6% against the USD over the past three months. The central bank has already raised the cost to short the currency and urged lenders to prevent any “herd behavior” in the foreign exchange market.

"The move could end the one-way depreciation of the yuan and stabilize the currency in the near term, as the central bank clearly signaled its intention to keep the yuan stronger than the key psychological 7 per dollar level," Ken Cheung, senior Asian currency strategist at Mizuho Bank Ltd., told Bloomberg.

Since the recent lows, the WisdomTree Dreyfus Chinese Yuan Fund (CYB) was 2.3% higher, Market Vectors Chinese Renminbi ETN (CNY) added 2.7% and the CurrencyShares Chinese Renminbi Trust (FXCH) rose 1.9%.

Goldman Sachs economists led by MK Tang argued that Chinese authorities are likely to "be more proactive in signaling their yuan guidance" through the reactivation of the countery-cyclical factor. "If the guidance were not heeded by the market, there might be follow-up policy actions to imprint the guidance on the market," Tang said in a note.

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