While non-performing loans have risen slightly, the “PBOC response has been to raise the quality of loans issued by the banks. There has been much attention to China’s loan to GDP ratio which has risen above 100% of GDP. This rate is low versus other Asian countries and far less than the levels preceding the Asian financial crisis in the late 1990s. The banks have responded to rising NPL levels by becoming more conservative in their lending activity,” said KraneShares.
A more sanguine view of Chinese banks is important because KBA and ASHR allocate 32.5% and 41.7% of their respective weights to the financial services sector.
Compelling valuations are also luring investors to A-shares ETFs. The CSI 300 Index, which tracks stocks listed on the Shanghai and Shenzhen exchanges, trades at a price-to-earnings ratio of less than 10, the lowest in over a decade, while Chinese shares listed on the Hong Kong exchanges trade at over 12 times earnings. A-shares are trading at their largest discount to H-shares in five-years. [A-Shares ETFs are Value Plays]
“China is among the cheapest stock markets in the world and while valuation alone is rarely a driver for a rally, there are several catalysts that currently support the rebound in Chinese stocks,” noted van Batenburg.
db X-trackers Harvest CSI 300 China A-Shares Fund
