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Small Easing Measure Bolsters China ETFs


In response to the economic slowdown, Beijing will support growth and cut reserve requirements for banks, bolstering China-related exchange traded funds.

The Global X China Financials ETF (CHIX) rose 0.9% Friday while the broader iShares China Large-Cap ETF (FXI) gained 0.6%. Year-to-date, FXI is down 4.5% and CHIX declined 8.3%.

China’s policy makers will “appropriately” lower reserve requirements for banks that have extended loans to rural borrowers and smaller businesses, Bloomberg reports.

The move “shows policy makers are concerned about the economic slowdown,” Zhang Bin, an economist with the Chinese Academy of Social Sciences, said in the article. “On the other hand, the government is trying to avoid all-out policy easing as it will jeopardize China’s much-needed economic restructuring.”

Additionally, the State Council plans to reduce social financing costs and maintain reasonable growth in credit and social financing in light of “relatively large” downward economic pressure. [Pessimistic Economic Outlook Weighs on Chinese Yuan ETFs]

“We expect more details to be announced next week on how the government rates the banks in terms of the share of their loans to the ‘real economy’ and how the size of the required reserve ratio cut will be linked to such a reduction,” Nomura Holdings said in a note. “The announcement enhances our conviction that policy easing should delay the risk of a hard landing to 2015.”

China’s economy is expected to expand 7.3% this year, its weakest pace since 1990. Premier Li Keqiang has stated that the government is shooting for a 7.5% growth target this year.

CHIX provides targeted exposure to China’s financial sector. Broad China ETFs have a large tilt toward the financial sector. For instance, FXI includes a 51.8% weight toward financials.

More recently, fund providers have been launching China ETFs that provide direct access to the Chinese A-Shares market, such as the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) , KraneShares Bosera MSCI China A ETF (KBA) , Market Vectors ChinaAMC A-Share ETF (PEK) and db X-trackers Harvest MSCI All China Equity Fund (CN) . [Not Perfect, but New ETF Improves the China Experience]

iShares China Large-Cap ETF


For more information on China, visit our China category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.