China Growth Picks up as Stimulus Takes Hold. This publication is a new regular report focusing on macro developments in China relevant to investors across asset classes and markets.
China steps up monetary and fiscal stimulus, marking a key policy turning point
The People’s Bank of China (PBoC) cuts reserve ratios for small and rural banks
Data releases over the past months indicate stimulus policies are starting to have an impact
Structural reform remains high on the policy agenda, but growth takes precedenc
China steps up monetary and fiscal stimulus, marking a key policy turning point. Over the past month a number of fiscal and monetary policy initiatives and speeches by senior leaders has made it clear that China will “do whatever it takes” to ensure growth stays in the 7%-8% range, with the upper half of the range preferred. We believe growth bottomed in Q1, with a relatively robust rebound in store in H2, marking a key economic turning point after three years of slowdown.
The People’s Bank of China (PBoC) cuts reserve ratios for small and rural banks, adding monetary stimulus to the fiscal stimulus already announced earlier this year. While in of themselves the cuts are unlikely to be highly stimulative, they signal the government is serious about improving credit conditions for certain segments of the economy, including rural areas and small enterprises. Remarks by PBOC officials indicate that targeted credit easing is now being encouraged.
Data releases over the past months indicate stimulus policies are starting to have an impact. Industrial production, retail sales, loan growth, fixed asset investment, exports and inflation have all picked up over the past two months, and we anticipate further gains in H2 2014.
Structural reform remains high on the policy agenda, but growth takes precedence. The clampdown on corruption and non-productive lending, the move to a true market-driven economy, improvement in environmental standards, and improved land rights for rural citizens remain key goals of the government. However, maintaining strong employment growth and social stability will take priority if there are short term conflicts between the two agendas – as there have been recently.
STIMULUS MARKS POLICY TURNING POINT
We expect China economic growth to pick up in the second half of the year, supported by loosening fiscal and monetary policy as well as improving external demand. China’s Premier has made it clear that he will do ”whatever it takes” (to paraphrase Mario Draghi) in order to maintain economic growth close to 7.5%, a level considered necessary to maintain full employment and social stability. In addition to the fiscal loosening announced earlier this year, monetary easing has now started earlier than most analysts expected.
Reserve requirement rate cut
The People’s Bank of China (PBoC) cut the reserve requirement ratio for small and rural banks by 50bps, effective June 16th. The announced cuts are in addition to the 50-200bps reserve ratio cuts for rural banks in April 2014. The cuts have been limited and carefully targeted, leaving plenty of dry-powder for deeper and broader cuts down the line. The cuts are also in line with the longer term moves to liberalise the banking system through gradual deposit interest rate liberalisation and bank consolidation.
Estimates of how much new liquidity the moves will inject vary from 95 billion Yuan to 50 billion Yuan. The change in the reserve ratio will apply to approximately two thirds of city commercial banks, 80% of non-county level rural commercial banks and 90% of non-county level rural cooperative banks.
Monetary and credit growth appears to be responding positvely to the cuts in the reserve ratios for rural banks earlier this year.
Potential changes to the loan-to-deposit ratio
The Deputy Chairman of China’s banking regulator, Wang Zhaoxin, said on 6 June that the regulator is considering adjusting the calculation of loan-to-deposit ratios (LDR). Many banks have hit the 75% cap and therefore their capacity to lend is constrained. It is expected that over the medium term, China will move to a liquidity-at-risk framework, eliminating the LDR requirement. But that would require a change in the Commercial Bank Law. For now, it is likely the changes will entail excluding certain types of loans from the calculation to allow banks to lend more freely, especially to small-to-medium sized companies.
Two-way currency risk maintained
The PBoC allowed the renminbi appreciate by 0.6% in the first half of June, defying those who thought the country had switched to currency depreciation strategy. The authorities have been at pains to introduce two-way currency risk to encourage better market discipline and prepare the country for further financial and currency market liberalisation. In our view, with the balance of payments still in regular surplus, reserves continuing to accumulate and the government actively encouraging a shifting emphasis from external to domestic-led growth and a continued move up the value-added chain, the renminbi will maintain a medium-term appreciation trend.
Local government financing reform being eased in
Following abuses in the early 90’s, local governments have been largely excluded from issuing bonds, with bank loans the main source of financing. However, reform is now being introduced, with the government stepping up its efforts to develop the municipal bond markets (with encouragement from the IMF) in order to increase transparency and reduce the growing reliance on hard to measure and control “shadow-banking” financing vehicles.
While the full development of a municipal bond market is some way off, the Ministry of Finance has been issuing bonds on behalf of local governments and some local governments are able to issue bonds within a quota. A total of 10 local governments can issue bonds with Beijing, Jiangxi, Ningxia and Qingdao being added to the list last month. The Ministry of Finance last week introduced the requirement that local governments must obtain credit ratings to issue bonds in a bid to bolster credit risk management. Last week the Ministry auctioned 51.6bn Yuan (US$8.3bn) worth of 3 and 5 year local government bonds.
Local government’s role in achieving targets reaffirmed
Premier Li Keqiang pressed local leaders last month to help the economy achieve its annual growth target. Li reminded local leaders of their “inescapable responsibility” to achieve this year’s economic targets and stressed that “no delay in action is allowed”.
Real economy responding to fiscal stimulus
Last month the State Council announced it will boost public investment in railway, highway, waterways, and aviation-network construction in the Yangtze River basin and cut some utility companies’ taxes by a total of about 24bn Yuan (US$3.9bn) a year. That will be positive for growth this year.
The real economy is already beginning to respond to the stimulus put in place earlier this year with industrial production, retail sales, loan growth, fixed asset investment, exports and inflation all rising and coming in higher than consensus expectations this month.
Investor sentiment is starting to improve
Recent actions and statements by key government officials and policy-makers make it clear that China will continue to pursue its reform agenda – at a more moderate pace if necessary – while loosening fiscal and monetary policy in order to reverse the three year economic slowdown. With economic data becoming more consistently positive and the government’s easing stance becoming more transparent, the China’s local A share market has started to trend higher. As one of the world’s cheapest equity markets, we believe that if the current policy stance continues and growth rebounds in H2, China domestic equity markets are in a position to outperform.
Important Information
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).
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REX Shares har inlett ett samarbete med HANetf för att lansera tre nya covered call ETFer i Europa.
De tre ETFerna är REX Tech Innovation Income & GrowthUCITSETF (ticker: FEGI), REX Tech Innovation Premium Income UCITSETF (ticker: FEPI) och REX Crypto Equity Income & GrowthUCITSETF (ticker: CEGI).
Enligt en nyligen genomförd oberoende undersökning uttryckte fondväljare i hela Europa den största efterfrågan på strategier med covered call och räntebärande tillgångar inom hela spektrumet av aktiva ETFer.
ETFerna är noterade på London Stock Exchange, Xetra och Borsa Italiana.
HANetf, Europas första och enda oberoende white-label UCITSETF och ETC-plattform, och ledande leverantör av digitala tillgångs-ETP:er, är glada att kunna tillkännage lanseringen av tre aktivt förvaltade covered call-ETFer från REX Shares.
Både FEGI och FEPI erbjuder exponering mot 20 ledande amerikansknoterade teknikaktier – inklusive FANG+-aktier – och strävar efter att generera månatliga intäkter genom covered call-strategier. FEGI skriver optioner på cirka 50 % av portföljen och balanserar intäkter och tillväxtpotential, medan FEPI använder en heltäckande strategi där man skriver calls upp till 10 % av kapitalet för att öka avkastningen utan att helt begränsa uppsidan.
Samtidigt fokuserar CEGI på 25 amerikansknoterade företag kopplade till krypto- och blockkedjeekosystemet och använder även en covered call-strategi på ~50 % i syfte att leverera attraktiva månatliga utbetalningar och fånga volatilitetsdrivna intäkter utan att väsentligt begränsa tillväxten.
De tre lanseringarna markerar REX Shares första inträde på den europeiska marknaden. Företaget förvaltar över 5 miljarder dollar i förvaltat kapital (AUM) över sina strategier i USA.
ETFer baserade på covered call och options ser betydande tillväxt i Europa och representerar nu 4,35 miljarder dollar i förvaltat kapital (AUM), efter att ha registrerat över 2,56 miljarder dollar i nettoflöden hittills i år. Enligt en nyligen genomförd oberoende undersökning uttryckte fondväljare i Europa den största efterfrågan på covered call- och räntebärande strategier inom hela spektrumet av aktiva ETFer (publicerat i HANetfs senaste Thematic & Active Review).
HANetf har nu fem covered call-produkter på sin plattform, enligt nedan:
Kevin Gopaul, CIO på REX Financial, kommenterade: ”Vi är glada över att markera REX inträde på den europeiska marknaden med lanseringen av tre innovativa covered call-ETF:er. Optionsbaserade inkomststrategier har sett en explosionsartad tillväxt över hela världen, och vi har haft turen att spela en ledande roll i den rörelsen. Dessa strategier är utformade för investerare som söker avkastning samtidigt som de förblir fullt investerade i aktier, och vi är stolta över att kunna erbjuda en differentierad, aktivt förvaltad strategi för att generera intäkter från ledande amerikanska teknikledare och kryptorelaterade företag.”
Hector McNeil, medgrundare och VD för HANetf, kommenterade: ”Vi är glada över att samarbeta med REX Shares för att lansera tre nya covered call-ETFer i Europa. Tillgångsslaget har tagit fart i Europa nyligen, men vi tror att det bara har börjat. REX Shares strategi är beprövad i USA, och nu har europeiska investerare en chans att delta.
”Vi har nu 5 covered call-ETFer på HANetf-plattformen och 13 aktiva ETFer. Vi tror att båda dessa områden är redo för betydande tillväxt i Europa, och detta återspeglas i ökningen av förfrågningar vi har fått om att lansera aktiva och optionsbaserade ETFer.
”Vårt mål är alltid att bryta ner inträdesbarriärerna på den europeiska ETF-marknaden och göra det möjligt för kapitalförvaltare från hela världen att lansera sina börshandlade strategier på ett snabbt och kostnadseffektivt sätt. Vårt produktutbud blir alltmer mångsidigt i takt med att vi välkomnar fler partners till plattformen, vilket säkerställer att vi alltid är innovativa och erbjuder relevanta strategier till europeiska investerare.”
iShares World Equity Enhanced Active UCITSETF USD (Acc) (WOEE ETF) med ISIN IE000D8XC064, är en aktivt förvaltad ETF.
Denna börshandlade fond investerar minst 70 procent i aktier från utvecklade marknader över hela världen. Upp till 30 procent av tillgångarna kan placeras i private equity-instrument, värdepapper med fast ränta med investment grade-rating och penningmarknadsinstrument. Värdepapper väljs utifrån hållbarhetskriterier och en kvantitativ investeringsmodell.
Den börshandlade fondens TER (total cost ratio) uppgår till 0,30 % p.a. iShares World Equity Enhanced Active UCITSETF USD (Acc) är den enda ETF som följer iShares World Equity Enhanced Active-index. ETFen replikerar det underliggande indexets prestanda genom fullständig replikering (köper alla indexbeståndsdelar). Utdelningarna i ETFen ackumuleras och återinvesteras.
Denna ETF lanserades den 31 juli 2024 och har sin hemvist i Irland.
Investeringsmål
Fonden förvaltas aktivt och syftar till att uppnå långsiktig kapitaltillväxt på din investering, med hänvisning till MSCI World Index (”Riktmärket”) för avkastning.
Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRO, Nordnet, Aktieinvest och Avanza.