Further supporting China-related ETF gains, the yuan currency advanced almost 7% against the U.S. dollar. Since the China ETFs do not hedge currency risks, a stronger Chinese currency translates to higher USD-denominated returns.
“Investors are still very positive,” Linus Yip, strategist at First Shanghai Securities Ltd, told Bloomberg. “Consensus is expecting over 10 percent return for Hong Kong stocks this year. Many funds are restocking after returning from holidays. Earnings growth and valuation rerating will continue to send indexes higher.”
Additionally, the move higher Tuesday followed reports last week that Chinese regulators would start a program letting Hong Kong-listed, mainland-incorporated firms turn non-tradable equity into tradeable shares, Reuters reports.
Currently, shares held by founders or major shareholders of Hong Kong-listed mainland firms are not eligible for trading on exchanges, “which is why major shareholders don’t really care about valuation of their H-shares,” Zhou Liang, fund manager at Minority Asset Management Co, which invests in both China and Hong Kong stocks, told Reuters. “But if their shares become tradable, they will pay attention to market valuations and have an incentive to improve operation efficiency.”
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