Can a Chinese Stock Market Rally Fuel Yields? | % ETF Trends

Once the epicenter of the Coronavirus pandemic, China is now on its way towards recovery if its stock market gives any indication to investors. This rally in China’s major indexes could fuel yields—something that has been hard to come by in today’s capital markets.

Aside from its recovery from the coronavirus pandemic, a MarketWatch report noted that “Chinese equities gained sharply after the country’s state media ran editorials and articles encouraging investors to buy stocks to support domestic markets.” With a government agenda of rallying investors behind its own country’s equities, yields around the world have been benefitting.

For example, U.S. Treasury yields headed higher during Monday’s trading session before only slightly retreating the following day. If the correlation to China in terms of its equity strength can sustain itself, this could be the necessary catalyst that could help drive yields higher.

“The market is trading as if the more cases we get, the more liquidity that will be provided by central banks,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities, in an interview.

“Where we are seeing a lot of action is in the inflation markets. The Fed seems inclined to gear forward guidance to inflation, and it wants to reflate the economy. When you look at all that collectively together, it does lend itself to inflation expectations moving up,” said Faranello.

^MSCN Chart

^MSCN data by YCharts

Finding Yield Around the World

As more companies are looking to stymie the effects of the pandemic, investors can look to global yield opportunities. Seeking fixed income opportunities around the globe could help yield-hungry investors satiate their appetites in this low rate environment.

One of these alternatives is the Principal Active Global Dividend Income ETF (GDVD). GDVD’s prime focus is seeking current income and long-term growth of income and capital.

The fund is an actively managed ETF that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying equity securities at the time of purchase. It invests in equity securities of small, medium and large market capitalization companies and in growth and value stocks.

GDVD offers investors:

  • Emphasis on dividend growth: Dividend growers and payers have historically had higher returns with less risk than non-dividend paying stocks.
  • High-quality companies: Adhering to a quality-first mentality removes subpar operators, helping to avoid value traps.
  • Thinking outside the box: Based in the Pacific Northwest, we avoid Wall Street’s herd mentality, which reinforces our contrarian edge.

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