The Chinese economy is presently going through an upheaval thanks to issues like credit crunch, shadow banking activities, faltering manufacturing activity and weak domestic market. It is not that the economy has not seen any upbeat data in the recent past. In fact, Chinese manufacturing activity thrived in September despite five-and-half year low industrial activity, the underlying tone remains weak.
However, trouble for one can often prove to be a blessing for another. To boost the struggling economy, China planned a mini-stimulus package a few months back targeting railways and other construction investment. The package is designed to provide tax relief for small enterprises.
Though all its policy measures were so far small in nature and did not seem strong enough to give the needed lift to the economy, the nation is now coming up with bigger packages brightening the appeal for China ETFs.
The central bank recently cut the re-lending rates for agricultural loans by 100 basis points, sanctioned a 20 billion yuan ($3.3 billion) re-lending quota to shore up agriculture and relaxed home buying rules in Hangzhou ─ a Chinese city buckling under pressure from saturation of home inventories.
If this was not enough, the Chinese central bank let each of the nation’s five key state-controlled banks to borrow $16.2 billion to boost soft industrial output and sort out credit crunch issues. In short, China seems steadfast in enhancing domestic consumption and activities.
All these measures spurred investors toward China A-Shares ETFs. Chinese A-Shares track stocks listed on the Shanghai or Shenzhen exchanges and represents true domestic possibilities. Lately, iShares filed for a fund which seeks to follow the China A-Shares market under the name of iShares MSCI China A ETF (read: China A-Shares ETFs Explained).
iShares MSCI China A ETF in Focus
The fund looks to track an index which consists of domestic equities that operate on the Shanghai or Shenzhen Stock Exchange. Constituents of the index mainly comprise consumer discretionary, financials and industrials companies. The expense ratio of the product is yet to be disclosed. The index targets all-cap securities.
How Does it Fit in a Portfolio?
This ETF could be an interesting pick for investors who want direct exposure to the Chinese economy. In normal cases, the A-Shares market is closely held and limited to domestic investors.