Exchange traded funds offering access to China’s A-shares equities, the stock’s trading on mainland exchanges in Shanghai and Shenzhen, are among Friday’s top-performing ETFs after the People’s Bank of China surprisingly lowered its benchmark one-year interest rate by 40 basis points to 5.6%.
The PBOC also pared its one-year benchmark deposit rates by 25 basis points to 2.75%. The changes go into effect Saturday. Those are the first PBOC rate cuts in over two years and the cuts come “as factory growth stalls and the property market, long a pillar of growth, is weak, dragging on broader activity and curbing demand for everything from furniture to cement and steel,” according to Reuters.
Despite the backdrop of softer economic data, the rate cuts took center stage, sparking a rally in an array of China ETFs. That includes A-shares funds such as the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), which have been in focus this week following the Monday debut of the Shanghai-Hong Kong Stock Connect. [A-Shares ETFs Falter on Stock Connect Launch]
Up nearly 5% on volume that appears poised to easily eclipse the daily average, ASHR is not only one of Friday’s top-performing non-leveraged ETFs, but the largest U.S.-listed ETF is also one of just 115 ETFs to hit all-time highs to this point in Friday’s session.
The KraneShares Bosera MSCI China A-Shares ETF (NYSEArca: KBA) and the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK), the oldest U.S.-listed A-shares ETF, are also among Friday’s top-performing ETFs each with gains of over 4%. PEK’s volume is already two and a half times the daily average while KBA also touched an all-time high.
The PBOC decision is seen as a boon for Chinese banks because it could give banks more flexibility in setting their own borrowing rates, which could improve access to credit for smaller companies, according to Reuters.
While A-shares ETFs are not as heavily allocated to the financial services sector as the iShares China Large-Cap ETF (NYSEArca: FXI), the largest China country-specific ETF is, the sector is prominent in these funds. For example, ASHR allocates 41.2% of its weight to the financial services sector, nearly triple its weight to industrials.
PEK has a 35.3% weight to financials, two and a half times its industrial sector allocation. KBA features an almost 36% weight to financials, more than double its 16% industrials allocation. [Stock Connect Could Lift A-Shares ETFs]
The PBOC rate cut could keep money flowing to A-shares ETFs. In the week ended Nov. 20, ASHR added $67.2 million in new assets to bring its assets under management total to $543.5 million. Demand for that ETF has been so robust that on two separate occasions over the past 70 days, Deutsche Asset & Wealth Management has been forced to announce limited creations for the fund. [A-Shares ETFs Still Eying Emerging Markets Promotion]
PEK added nearly $6.8 million in the week ended Nov. 20, including more than $3 million on Nov. 17, the day the Shanghai-Hong Kong Stock Connect debuted, representing the ETF’s best one-day inflow since March.
Market Vectors ChinaAMC A-Share ETF
