China A-Shares ETFs to Hedge Yuan Risks

  • People’s Bank of China cuts amount of cash the country’s lenders can lock away
  • The half percentage-point cut could add 685 billion yuan, or $105 billion, into the financial system
  • Even after the latest cut, the ratio is still 17% for the biggest banks, the highest such levels in the world

The Chinese government could continue to ease measures to help stimulate growth, potentially putting further pressure on the Yuan currency. Consequently, investors who want to capitalize on the potential growth but are wary of further foreign exchange risks can consider the relatively new currency-hedged China A-shares exchange traded funds.

The People’s Bank of China cut the amount of cash the country’s lenders can lock away as Beijing tries to combat slowing growth, Bloomberg reported.

“This move suggests that, in the end, supporting growth takes priority over other considerations,” Louis Kuijs, chief Asia economist at Oxford Economics, said. The “move matters in terms of what it signals about the policy direction.”

The half percentage-point cut in the required reserve ratio could add 685 billion yuan, or $105 billion, into the financial system, according to Bloomberg. However, the added money supply could put further pressure on the Yuan currency, which has depreciated 3.6% against the U.S. dollar since October.

Even after the latest cut, the ratio is still 17% for the biggest banks, the highest such levels in the world, and leaves the Chinese central bank to do more.

“This shows the PBOC still has room to stimulate markets and the economy if necessary,” Ryan Lam, head of research at Shanghai Commercial Bank Ltd., told Bloomberg. “One message they want to send is that they have more tools than most other central banks. It’s a positive move and gives reassurance to the investor, at least in the short term.”