China Moment(um)
The Chinese equity market has seen a strong growth coming into July, with CSI 300 Index and FTSE China A50 Index surging by more than 12% in a matter of days, returning to levels last seen in the 2015 bull market.
The Chinese equity market has seen a strong growth coming into July, with CSI 300 Index and FTSE China A50 Index surging by more than 12% in a matter of days, returning to levels last seen in the 2015 bull market. Banks and insurers have been the top performers contributing more than 7% month to date. The better-than-expected PMI (Purchasing Managers’ Index) data in June indicates solid recovery of business activities back to the pre-COVID level. The PMI is a measure of economic trends in manufacturing and services. A score above 50 indicates expansionary; below 50 indicates contractionary. At 30 June 2020 China’s services PMI was 58.4, as shown in the graph below.
Caixin China General Services PMI
Source: Bloomberg as at 8 July 2020
Investors have reacted very positively to the People’s Bank of China (PBOC) rate-cut policy in relending and rediscounting programs; the total margin transactions outstanding rose significantly last week and could be indicative of a forthcoming bull market, especially if levels reach the 2015 peak.
China margin trading – total outstanding balance of margin transactions (in 100 million)
Source: Bloomberg as at 8 July 2020
Over the long run, China A-shares look attractive compared to other emerging markets. China is transitioning from a manufacturing intensive economy towards a new economy focusing on financial services, technology and healthcare. In addition, the reliance on exports is gradually decreasing as a percentage of GDP as a result of resilient domestic demand. As China is gradually coming out of economic shock brought by the pandemic, there are great growth opportunities in Chinese equities.
Investors can access China A-shares by investing in an ETF that track indices like the FTSE China A50 Index or the CSI MarketGrader China New Economy Index.
Trading tip: For best practice ETF execution, use a Limit Order and trade while the China markets are open – which is currently from 12.30pm to 2.30pm (Australian Eastern Daylight Saving time) on ASX.
Published: 08 July 2020
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