If the International Monetary Fund includes the Chinese renminbi currency as part of its supplementary foreign exchange reserve assets, Chinese equities and country-specific exchange traded funds could advance as global indices and investors raise their China exposure.
Year-to-date, the iShares China Large-Cap ETF (NYSEArca: FXI), the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange, rose 25.4%. Similarly, other China H-shares ETFs have strengthened, with the SPDR S&P China ETF (NYSEArca: GXC) up 24.3% and the iShares MSCI China ETF (NYSEArca: MCHI) 27.0% higher.
Additionally, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), which tracks mainland Chinese A-shares, increased 33.4% so far this year while KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) gained 37.4% and the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) returned 36.6%.
Chinese equities could maintain their momentum ahead if the International Monetary Fund decides to include the RMB currency in its special drawing rights, or SDR – the SDR represents the value of a basket of key international currencies reviewed by the IMF every five years, which include U.S. dollars, euro, U.K. pound sterling and Japanese yen.
An endorsement by the IMF would improve China’s position in the global economy and financial markets, reports Henny Sender for the Financial Times.
For instance, Michael Cembalest of JPMorgan Asset Management pointed out that Chinese H-shares makes up 2.5% of the MSCI All Country World Index, but if the RMB is convertible enough, mainland A-shares could be included in the index, which could lift China’s weight to over 10% of the benchmark.