Chinese markets and country-specific exchange traded funds have rebounded and may continue to pick up momentum ahead.
“We see scope for China’s cyclical economic rebound to strengthen,” BlackRock strategists, led by Richard Turnill, Global Chief Investment Strategist, said in a note. “Sentiment on China has swung in a positive direction, after the country’s sluggish growth was feared to be a major risk to the global economy just a year ago.”
BlackRock analysts believe China could experience solid near-term growth as global companies have become increasingly positive in China, based on analysis of text mining of corporate conference calls.
Additionally, ongoing reforms, notably from the supply side, could further support Chinese economic growth. Reforms have bolstered industrial profitability and strengthened commodity prices. China’s exporters are also enjoying improvements from a rebound in global trade.
The Chinese economy is also shifting towards domestic-oriented consumption as a main growth driver. Consequently, consumption-driven sectors liek technology and services are becoming a growing component in the economy.
“We see the cyclical growth upswing underpinning Chinese and emerging market (EM) equities,” the strategists said.
Nevertheless, the Chinese markets are not without their risks.
“We see a breakdown in trade triggered by U.S. protectionism as the biggest near-term risk to China. China’s mounting debt levels are also a concern. We see the risk of a near-term debt crisis as limited, but the problem will only get worse the longer it drags on,” BlackRock warned.
Investors interested in accessing China’s markets have a number of options available. For instance, the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) track Chinese companies listed on the Hong Kong stock exchange.
Investors can access Chinese markets directly through options like the VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: PEK), iShares MSCI China A ETF (BATS: CNYA) and db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR).
PEK tracks the CSI 300 Index, which includes the 300 largest and most liquid stocks in the China A-shares market. CNXT includes the 100 largest China A-shares stocks listed on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. CNYA tracks an MSCI index composed of Chinese equities listed on the Shanghai and Shenzhen Stock Exchanges. ASHR also tracks A-shares taken from the CSI 300 Index.
BlackRock was also recently awarded Renminbi Qualified Foreign Institutional Investor (RQFII) quota of RMB11 billion (US$1.6 billion) in the United States by China’s State Administration of Foreign Exchange (SAFE), according to a note. The new designation allows BlackRock to expand investment options with direct exposure to China mainland securities ahead.
“The first US RQFII quota is a milestone for BlackRock and our iShares ETFs,” Mark Wiedman, Global Head of iShares and Index Investing, said in a note. “We move closer to our goal of offering more direct Chinese stock and bond exposure in iShares to clients anywhere in the world.”
For more information on the Chinese markets, visit our China category.