China exchange traded funds are bouncing back this year following a disappointing 2018. For example, the iShares MSCI China ETF (NASDAQ: MCHI) is higher by almost 12%, but growth in the world’s second-largest economy remains pivotal to the fortunes of MCHI and other China ETFs.

Recent data points indicate traders are buying some marquee ETFs tracking developing economies. After the recent pullback in the equities market, bargain hunters may look to beleaguered emerging market stocks and region-related ETFs for value. Many of those ETFs feature China as the largest geographic exposure.

Investors appear to be embracing the ideas that the dollar will weaken this year and that the Federal Reserve will slow its pace of interest rate hikes or that no rate increases at all will be delivered in 2019. China’s efforts to stimulate its massive economy also make the case for considering the country’s equity markets.

“Economic growth is key for the financial market outlook, and we expect growth to slow materially as the post-crisis recovery enters its late stage. The slowdown is likely to be led by the U.S. but we see it partly cushioned by more steady growth in Europe and emerging markets (EMs), notably China,” according to BlackRock.

What To Expect

Market observers are expecting more stimulus to come in 2019 as Chinese policymakers have rolled out a number of monetary, regulatory and easing measures to support growth and assuage anxious investors after the trade tensions and growth slowdown. For example, China recently announced 1.3 trillion yuan, or $193 billion, in new measures like tax cuts and reduced tariffs.

“We expect the Chinese economy to regain its footing in the first half of 2019, thanks to stimulus measures already in place and others expected to come, as we write in our latest Macro and market perspectives piece, Slowing – but still growing. China’s policymakers are seeking to boost the economy through a range of channels, including tax cuts, injecting fresh liquidity via cuts to bank reserve requirements while relaxing macro-prudential measures aimed at limiting financial leverage,” according to BlackRock.

Additionally, the Chinese markets now look more attractive on a valuation standpoint. China’s equity market trade at a forward price-to-earnings of 10.6 from the 2018 high of 14.8. The strategist also pointed out that corporate earnings look more stable as the economy shifts towards domestic consumption from its reliance on foreign exports.

For more information on the Chinese markets, visit our China category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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