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China ETFs Rise After MSCI Quadruples Weighting of Large-Cap Chinese Shares

This article was originally published on ETFTrends.com.

China ETFs went higher on Friday after index provider MSCI Inc. announced it would quadruple its weighting of large-cap Chinese shares in its benchmark indexes.

China ETFs went higher, such as the iShares China Large-Cap ETF (NYSEArca: FXI) was up 1.11% and the iShares MSCI China ETF (MCHI) rose 0.82 percent. For traders, the Direxion Daily FTSE China Bull 3X ETF (YINN) rose about 3 percent.

In a press release on Thursday, MSCI Inc. announced it would increase the weight of China A shares in the MSCI Indexes by increasing the inclusion factor from 5% to 20% in three steps. The decision came after an extensive global consultation with a large number of international institutional investors, including asset owners, asset managers, broker/dealers and other market participants worldwide.

MSCI said the proposal to increase the weight of China A shares garnered overwhelming support from investors.

“Stock Connect has proven to be a robust channel to access A shares. The successful implementation of the initial 5% inclusion of China A shares has been a positive experience for international institutional investors and has fostered their appetite to increase further their exposure to the mainland China equity market,” said Remy Briand, MSCI Managing Director and Chairman of the MSCI Index Policy Committee. “The strong commitment by the Chinese regulators to continue to improve market accessibility, evidenced by, among other things, the significant reduction in trading suspensions in recent months, is another critical factor that has won the support of international institutional investors.”

"Overall, the final inclusion plan continues to look as aggressive as its proposal, marking another milestone in China's capital market opening up," Citi China equity strategist Jerry Peng said in a note dated Thursday.

Global Rebound Underway?

The uptick in China equities comes as a global rebound could be underway, according to Goldman Sachs Group Inc. Chief Economist Jan Hatzius, who cites that while growth is lukewarm, the investment firm’s current activity indicator in February is slightly above downwardly-revised numbers for December and January.

“Some green shoots are emerging that suggest that sequential growth will pick up from here,” Hatzius and Sven Jari Stehn wrote in a note dated Feb. 26.

Related: U.S. Stocks Up for Ninth Straight Week

Earlier this year, the International Monetary Fund lowered its global growth forecast on Monday, pointing to ongoing trade wars dampening China’s economic outlook as well as rising interest rates in the United States. The IMF trimmed its growth expectations to 3.5 percent from 3.7 percent. Global growth outlook for 2020 was also cut to 3.6 percent from 3.7 percent.

In the meantime, it’s not all rose-colored glasses for all. Over three-quarters of business economists are foreseeing a U.S. recession by the end of the year 2021, according to a semiannual National Association for Business Economics (NABE) survey released Monday.

The survey results show that 10 percent expected a recession at the beginning of this year, while 42 percent are expecting one within a year. Another 25 percent expect to see an economic contraction by the beginning of 2021 while the rest have no opinion or see a recession happening after 2021.

“We are prepared for a recession,” said Jamie Dimon, Chief Executive Officer of JPMorgan Chase & Co.. “We’re not predicting a recession. We’re simply pointing out that we are very conscious about the risks we bear.”

For more market trends, visit ETF Trends.