Conventional thinking is that the real estate property development crisis in China can only get better after last year’s precipitous drop. As such, a rebound can be a possible play, especially if inflation fears start to dissipate globally and central banks start easing monetary policy again.
It also helps that state-owned banks are willing to lend a helping hand in order to get real estate under control, according to a Bloomberg report. Additionally, the Chinese government is asking lenders to loosen their requirements for financing, which could help boost more homebuying and provide more access to capital for developers.
“Optimism that the worst of China’s property slump is over boosted markets after Bloomberg reported that regulators told the biggest state-owned banks to provide financing worth at least $85 billion to the embattled sector,” the report said.
“We believe this adds weight to the long list of ongoing easing measures for the property sector, and suggests the worst time of property tightening is likely behind us,” Citigroup analysts including Judy Zhang wrote in a note.
Playing the Real Estate Rebound
Chinese real estate stocks could benefit the most from a rebound, which puts the spotlight on thematic exchange traded funds (ETFs) that operate in this space. As such, one fund to consider for a rebound play is the Global X MSCI China Real Estate ETF (CHIR).
CHIR seeks to provide investment results that generally correspond to the price and yield performance, before fees and expenses, of the MSCI China Real Estate 10/50 Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index.
The underlying index tracks the performance of companies in the MSCI China Index (the “parent index”) classified in the real estate sector, as defined by the index provider. Summarily, ETF investors get the following:
- Targeted exposure: CHIR is a targeted play on the real estate sector in China, the world’s second-largest economy by GDP.
- ETF efficiency: In a single trade, CHIR delivers access to dozens of real estate companies within the MSCI China Index, providing investors an efficient vehicle to express a sector view on China.
- All share exposure: The index incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, red chips, P chips, and foreign listings, among others.
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