While the Chinese economy may be slowing from its breakneck speeds of yesteryear, China’s markets and country-specific exchange traded funds (ETFs) may enjoy a more solid and sustainable growth rate.
“There may be good news in China’s slower growth. A modest slowdown from the first-quarter’s unexpectedly strong 7% pace is welcome, in our view, as China rebalances its economy and downshifts to a more sustainable pace of growth less reliant on credit,” BlackRock iShares strategists, led by Richard Turnill, said in a research note.
According to the BlackRock GPS gauge, BlackRock strategists argue that there is only moderate cooling for potential upside in China’s composite PMI in the coming months, which run counter to many expectations of a so-called hard landing.
The recent slowdown may be attributed to expiring tax rebates that bolstered auto sales in 2016, but overall consumption has held up. A crackdown on financial leverage could limit spending by state-owned enterprises in the second half, but BlackRock believes it won’t hurt the private sector.
Overall, policy makers may show a willingness to reform. The global reflation trade could help support exports. The Chinese yuan is also stabilizing.
“Bottom line: Renewed worries about China appear overdone and we see the real growth rate holding near 6.5% for now,” the BlackRock strategists added. “We like Asian equities and also see opportunities in Asian sovereign and credit markets with solid fundamentals and reform momentum.”
Investors interested in accessing China’s markets have a number of options available. For instance, the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) track Chinese companies listed on the Hong Kong stock exchange.
Investors can access Chinese markets directly through options like the VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: PEK), iShares MSCI China A ETF (BATS: CNYA) and db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR).
PEK tracks the CSI 300 Index, which includes the 300 largest and most liquid stocks in the China A-shares market. CNXT includes the 100 largest China A-shares stocks listed on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. CNYA tracks an MSCI index composed of Chinese equities listed on the Shanghai and Shenzhen Stock Exchanges. ASHR also tracks A-shares taken from the CSI 300 Index.
For more information on the Chinese markets, visit our China category.