China ETFs Jump on Reopening Economy, Stimulus Measures | ETF Trends

China’s country-specific exchange traded funds are rallying as the developing market reopens from its COVID-19 lockdowns and Beijing plans stimulus measures to support the stumbling economy.

On Tuesday, the iShares MSCI China ETF (NASDAQ: MCHI) rose 3.7%, the Xtrackers CSI 300 China A-Shares ETF (ASHR) gained 2.5%, and the SPDR S&P China ETF (NYSEArca: GXC) increased 3.4%.

China’s cabinet revealed a package of 33 measures, including fiscal, financial, investment, and industrial policies, to revitalize the weakened economy that was weighed down by the coronavirus lockdowns, Reuters reported.

The State Council also pledged to further cut real borrowing costs and raise financial support for infrastructure and major projects.

“The market has been extremely pessimistic. From this stage, there should be a natural recovery in expectations for the Chinese economy,” Min Chen, a portfolio manager and head of China at Somerset Capital Management, told the Wall Street Journal.

A two-month lockdown in Shanghai appears to be coming to an end, which has helped reassure investors that growth could begin to pick up. City officials stated Monday that low-risk residential areas will reopen and public transport will resume beginning Wednesday.

Official data also revealed that gauges of Chinese factory and service-sector activity shifted toward an expansionary level in May as more cities reopened and officials took steps to support the slowing economy.

Consequently, David Chao, global market strategist for Asia-Pacific excluding Japan at Invesco, argued that optimism has grown concerning Chinese stocks in recent days.

“While it’s difficult to call a bottom to the recent downward market moves, I think Chinese equities’ valuation pretty much already discounts a worst-case scenario,” Chao told the WSJ, adding that current market pricing did not reflect the possibility of a second-half rebound in Chinese economic growth.

However, Alicia García-Herrero, chief Asia economist at the investment bank Natixis, warned that the specter of another lockdown due to Beijing’s zero-tolerance COVID-19 policy remains an ongoing headwind for economic growth.

“The real point is that with this dynamic zero-Covid policy, the economy can’t grow fast. I can’t see a wonderful year for the Chinese stock market,” García-Herrero told the WSJ.

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