With China’s economy in need of a jumpstart, central bank easing could provide the revitalization it needs. In turn, this could make way for strength in China-focused exchange traded funds (ETFs) such as the Invesco Golden Dragon China ETF (PGJ).
The 2023 year started well for China as optimism surrounding a comeback brought investors back into Chinese assets. However, the rally appears to have stalled, forcing the Chinese government to find ways to re-ignite economic growth.
Of course, one way to do that is to address high global interest rates as central banks around the world are tightening monetary policy to keep inflation under control. That said, China’s central bank will further ease monetary policy in an effort to get consumers and businesses to start spending again.
“China’s sovereign bonds are an ‘obvious’ trade as the central bank will ease monetary policy for at least another year to support a slowing economy, according to Invesco Ltd,” Bloomberg reported.
“The People’s Bank of China will need to maintain loose monetary policy as a recovery of the nation’s over-leveraged property sector will be painful and take time, said Freddy Wong, head of Asia Pacific fixed income,” the report added further.
Furthermore, addressing growth stagnation will take a multi-pronged approach, especially when it comes to addressing the fallout from the aforementioned real estate development crisis that hit over the last couple of years. As such, the Chinese government will implement other measures that can stimulate capital investment, like the issuance of bonds.
“China’s promised ‘basket of measures’ to defuse local government debt risks is likely to include special bond issuance, debt swaps, loan rollovers, and something Beijing really loathes: dipping into the central budget,” Reuters reported.
A Golden Opportunity in China
PGJ seeks to track the investment results of the NASDAQ Golden Dragon China Index. The underlying index is composed of securities of U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China.
PGJ gives investors the safety of large-cap exposure, especially given the headwinds for China in the current economic environment. Names include prominent mega-caps such as JD.com, Baidu, and Alibaba as part of its top holdings.
The fund can currently provide an area of value for investors to gain entry as China looks to right its economic ship. As of August 7, the sector allocation reveals that about 57% of the fund is in consumer discretionary, which could pick up if the country’s stimulus measures prove effective.
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