Despite some growing pains during a shift in economic policies, China-related exchange traded funds could bounce on hopes that Beijing will implement monetary easing.
The iShares China Large-Cap ETF (NYSEArca: FXI) has declined 9.2% year-to-date while the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), an ETF that directly accesses the A-shares traded on mainland China, is down 10.6% year-to-date. Over the past week, though, FXI has increased 5.3% while ASHR rose 1.6%.
“Growth is likely to pick up in China in response to policy stimulus,” Barclays Capital asset allocation researchers led by Guillermo Felices said in a Forbes article. “We’d stay long growth (and) China-linked assets via a basket of selective emerging market equities, base metals and resources equities.”
Barclays analysts believe that Beijing will eventually step in to bolster the economy. The company predicts China’s economy will expand 7.2%, or slightly below market consensus of 7.4%.
“The markets have rebounded on rising hope that the government is preparing for another round of monetary or fiscal stimulus,” Robbert van Batenburg, Director of Market Strategy at brokerage firm Newedge, said in the article. “In the past, the Chinese government loosened policy every time the economy slipped significantly below China’s self-imposed GDP growth targets. Recent developments have given some credence to this view.”
So far, the central bank has maintained low money market rates, weakened the exchange rate and expanded infrastructure projects.
“We are confident that the authorities will support growth over the next few months,” Felices and his colleagues wrote in a research note.