China country-related exchange traded funds have enjoyed a fast recovery after the coronavirus pandemic disrupted global economies, and the rebound in Chinese markets may still have legs.
Over the past three months, the iShares MSCI China ETF (NASDAQ: MCHI), the largest China ETF by assets, increased 8.4% and the Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), the largest China A-shares related ETF, advanced 11.1%. Meanwhile, the broader iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) was 6.8% higher.
Chinese stocks have outperformed better their U.S. counterparts for most of the year. While the novel coronavirus first struck the city of Wuhan in late 2019, Chinese authorities have quickly imposed lockdowns, travel restrictions and quarantine measures across the country to prevent the spread of Covid-19 within its borders.
After the painful contraction in the first quarter, China’s economy rebounded and expanded 3.2% in the second quarter, with industrial manufacturers and retailers enjoying a resurgence in global and domestic demand, the Wall Street Journal reports.
Looking ahead, the International Monetary Fund projects China’s real GDP to grow 1% for the full year, compared to the global growth of negative 4.9%.
“The good performance of the markets is largely in line with China’s strong performance in containing the virus and having a solid framework for keeping it that way,” Homin Lee, Asia macro strategist at Lombard Odier, told the WSJ.
Consequently, analysts and large investors anticipate Chinese stocks to maintain its momentum in the coming months.
Furthermore, China’s onshore markets, which are dominated by tens of millions of individual investors, are somewhat insulated from the political uncertainties around the U.S. presidential election in November. Jim McCafferty, joint head of Asia-Pacific equity research at Nomura, argued that the outcome of the U.S. election doesn’t really matter to most Chinese companies since most of those firms operate domestically.
The China’s economic recovery could still be weighed down by worsening coronavirus cases in other countries, which would diminish demand for Chinese goods and exports.
“Covid is still an X-factor,” Howard Wang, a portfolio manager and head of Greater China equities at J.P. Morgan Asset Management, warned.
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