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ETFs in Focus as China Cuts Key Repo Rate

Sweta Jaiswal, FRM

China’s central bank recently slashed its short-term funding rate for the first time since 2015. In order to revive growth, the People’s Bank of China (PBOC) cut the seven-day reverse repurchase rate  to 2.50% from 2.55%. Moreover, the authorities injected another 180 billion yuan ($26 billion) of cash into the financial system through open market operations.

Of late, China’s central bank has been taking measures to boost credit. Recently, the PBOC slashed the interest rate on its one-year medium-term lending facility loans for the first  time since early 2016. It also offered 200-billion yuan ($29 billion) of one-year loans to banks in order to add liquidity to the banking system. It is being speculated that China’s central bank will soon slash its new benchmark loan prime rate, thereby lowering mortgage rates and boosting credit (read: China ETFs in Focus as Investment Growth Hits 20-Year Low).

China’s Current Economic Scenario

China recently disappointed investors with third-quarter GDP  growth of 6% year over year, marking the slowest pace since first-quarter 1992. The latest data on China’s industrial economy highlights the broad-based slowdown in the country’s manufacturing sector. Moreover, data released by China’s National Bureau of Statistics (NBS) on fixed asset investment, purchases of capital goods, real estate and infrastructure growth hinted at the lowest growth rate since November 1999 when the system of maintaining official records had started. Weak global economic growth and greater uncertainties in the external environment are considered major reasons for the slowdown. Notably, companies are limiting investments given the insecurity emanating from trade tensions.

Moreover, rising pork prices due to the outbreak of African Swine fever have led to the fastest rise in China’s consumer inflation level in around eight years. The metric also crossed the government’s target of around 3% in October 2019.

What to Expect?

China’s economy has been grappling with trade war tensions. Analysts believe that economic growth rate might fall below 6% in 2020. More stringent efforts are therefore being expected from the central back to revive economic growth. However, per the latest updates, the United States and Beijing are close to striking a trade deal. In fact, China recently removed its four-year-long ban on U.S. poultry shipments. However, Beijing is not expected to benefit on an immediate basis from a ‘phase 1’ trade deal with the United States (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).

ETFs in Focus

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

FXI

Th8is 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 $4.38 billion and expense ratio is 0.74% (read: ETFs in Focus as China's Economic Slowdown Persists).

MCHI

This fund tracks the MSCI China Index. It comprises 461 holdings. The fund’s AUM is $4.03 billion and expense ratio is 0.59% (read: ETF Winners as Sino-US Trade War Tensions Ebb).

ASHR

This fund tracks the CSI 300 Index. It comprises 301 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 that are headquartered or incorporated in the People’s Republic of China. It holds a basket of 66 stocks. The product has AUM of $186.5 million and charges 70 bps in annual fees.

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Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
iShares China Large-Cap ETF (FXI): ETF Research Reports
 
iShares MSCI China ETF (MCHI): ETF Research Reports
 
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): ETF Research Reports
 
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