China ETFs rally as regulators provide market support

Jul 10th, 2015 | By | Category: Equities

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China equity ETFs have bounced back strongly, posting sharp gains over the past two days as increased efforts by regulators to stabilise the market have seen equity prices surge. As at the time of writing, the db x-trackers Harvest CSI300 Index UCITS ETF (DR) (RQFI LN), one of the larger physical China A-share ETFs on offer in Europe, had gained 18.9% since Wednesday’s close.

China A-shares ETFs rally as Chinese regulators provide market support

China ETFs have regained some ground thanks to efforts from the central bank and regulators.

Forceful measures have been announced to provide liquidity, quell selling pressure and encourage stock purchases, putting an end to the equity market’s fall.

Beyond the Chinese central bank’s own efforts to support equity prices with its reserves, the China Securities Regulatory Commission asked listed companies on Thursday to support their share prices through measures such as major holder stake increases, share buybacks and share purchases by company executives.

These measures should work to stem redemptions from exchange-traded funds and reduce margin calls for leveraged equity owners which drove forced equity selling over June and July.

While almost half of listed companies on the Shanghai and Shenzhen exchanges remain suspended, the few stocks that have resumed trading have made solid gains. It is unknown what the ramifications will be as more companies resume trading, but it is clear that Chinese regulators are ready and willing to step up and support the market.

It is of course imperative that Chinese regulators provide long-term supportive policies to restore investor confidence, however in the short-run it is evident that the government of the world’s second largest economy’s stands ready to uphold their equity market.

Market corrections often provide an attractive entry point for long-term investors who believe in the growth prospects of emerging economies such as China. With an economy that is growing ahead of the global pace, a financial system which is edging towards liberalisation, and the possibility that China A-shares may enter the major global indices, such as the MSCI Emerging Markets Index and FTSE Emerging Index, over coming months, this could be a time to incrementally add exposure to China ETFs, particularly those offering physical exposure to A-Shares.

For investors who are confident that Chinese regulators will continue to support the equity market and for those looking for an attractive entry point to the China A-shares market there are a number of European listed China A-shares ETFs available, including the aforementioned db x-trackers Harvest CSI300 Index UCITS ETF (DR) (RQFI LN), the Source CSOP FTSE China A50 ETF (CHNA LN), the Lyxor UCITS ETF CSI 300 A-Share C-USD (GBP) ETF (CSIL LN), the iShares MSCI China A UCITS ETF (CNYA LN) and the ETFS-E Fund MSCI China A GO UCITS ETF (CASH LN).

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