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China Prepared to Exercise Patience in Long Trade War

This article was originally published on ETFTrends.com.

Even with the challenges facing its economy, such as slowing growth, China is prepared to exercise patience in what could be a long, protracted trade war. While the second largest economy is brimming with confidence, it might be wise for investors to give China-focused exchange-traded funds (ETFs) another look.

The U.S.-China trade war is now 18 months in and per a CNBC report, “China is preparing for a battle that could be as long as the U.S.-Japan trade war in the 1980s that lasted more than a decade, according to Yi Xiong, China economist at Deutsche Bank.”

In short, China is looking to play only one way—the long game.

“We think China is neither aiming to quickly reach a trade deal, nor trying to hit back at the U.S. as hard as it can,” said Yi Xiong, China economist at Deutsche Bank. “China’s current strategy likely has a long time horizon embedded in it. The time horizon may also go beyond the life cycle of the current U.S. administration.”

In the meantime, China is doing whatever is necessary in order to decrease its reliance on the U.S. For example, the official newspaper of the Chinese Communist Party, the People’s Daily, is publishing articles that showcase the improving relations with Thailand, Japan, South Korea, and Latin America.

“China - U.S. relationship [is] at new low level,” said Donald Straszheim, head of Evercore ISI’s China Research. “Both sides still have ‘red lines’ which are incompatible.”

Furthermore, domestic efforts are taking place to shore up its development in technological advancements.

China on Tuesday issued 20 directives to boost consumption, in an effort to further tap domestic market, not putting so much emphasis on trade talks. China's economy is increasingly driven internally, it's more and more difficult for the US to press China to make concessions.

— Hu Xijin 胡锡进 (@HuXijin_GT) August 27, 2019

One ETF to consider is the Xtrackers Harvest CSI 300 China A ETF (ASHR) as a way for investors to gain exposure to China’s biggest, best and most authentic equities. ASHR seeks investment results that track the CSI 300 Index that is designed to reflect the price fluctuation and performance of the China A-Share market. In essence, it’s composed of the 300 largest and most liquid stocks in the China A-Share market, including small-cap, mid-cap, and large-cap stocks.

China is beginning to deregulate access to its markets in order to pave the way for more foreign investments to a variety of asset classes. That being said, the capital flowing into China will turn from a trickle into a full-fledge gush if it hasn’t already.

A way for investors to gain exposure to China’s biggest, best and most authentic equities is via the country’s A-shares. ASHR seeks investment results that track the CSI 300 Index that is designed to reflect the price fluctuation and performance of the China A-Share market.

In essence, ASHR is composed of the 300 largest and most liquid stocks in the China A-Share market, including small-cap, mid-cap, and large-cap stocks. Without a majority of its holdings in state-owned enterprises compared to other ETFs, ASHR provides a more diversified representation of gaining access to the world’s second largest economy.

For more market trends, visit ETF Trends.

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