Chinese markets and A-shares related exchange traded funds rallied Tuesday as ongoing weakness fanned speculation that Beijing would step in to prop up the ailing economy.
The Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT) and Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) led gains Tuesday, surging 7.3% and 8.1%, respectively. The China A-shares ETFs track more middle capitalization-weighted companies and include a hefty weight in industrials, which strengthened on the prospects of state-fund buying. ASHS includes a 22.2% tilt toward industrials and CNXT has 17.2% in the sector.
Meanwhile, the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), the largest China A-shares-related ETF, gained 4.2% Tuesday.
Data revealed China’s economic growth missed estimates last quarter, and industrial production, retail sales and fixed-asset investments also slowed at the end of the year, reports Kyoungwha Kim for Bloomberg.
Consequently, Northeast Securities Co. and Central China Securities Co. now expect the government to further ease monetary policy, like cutting interest rates or lenders’ reserve-requirement ratios.
“There’s a possibility of a cut in banks’ reserve-requirement ratios,” Shen Zhengyang, an analyst at Northeast Securities, told Bloomberg.. “Railway and infrastructure companies are the main fulcrum for China to stabilize economic growth.”
Reorient Financial Markets Ltd. also believes the government-led funds are entering the oversold market to bolster confidence, which has occurred before during last year’s $5 trillion rout.