China – light at the end of the tunnel?
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    China – light at the end of the tunnel?

    Alice Shen, Senior Associate - Investments & Capital Markets
    04 November 2021

    There was the property slowdown, provincial COVID resurgence and a tech clampdown, but now there’s some good news for Chinese equities. For the past 18 years, Chinese A-shares have exhibited strong seasonality in Q4, and history looks to potentially repeat itself.

     

    % of Positive Return

    Average Return

    Median Return

    Q1

    61%

    5.4%

    1.8%

    Q2

    44%

    -0.7%

    -1.3%

    Q3

    50%

    1.6%

    -0.2%

    Q4

    67%

    6.6%

    4.4%

    Source: CSI 300 index from 31 December 2002 to 31 December 2020. Bloomberg as of 25 October 2021. Past performance is not indicative of future performance
       
    On the monetary policy front, China is standing as an overachiever with elevated real rates, high even compared to many emerging markets. Should the property slowdown drag further on growth, China would have easing space up their sleeve. According to CSLA research, policy easing and elevated risk premium in China high yield credits could signal outperformance in Chinese equities, along with the seasonality tailwind.

    EM Real Policy Rates (%)

    imagep3tzn.png
    Source: VanEck Research; Bloomberg as of 25 October 2021

    The equity market sentiment may further improve as we head toward the end of the year with more supportive measures related to the power supply constraints and property sector. The power shortage could steadily recover as the China Securities Regulatory Commission (CRSC) announced plans to curb excessive speculation in the price of thermal coal last week.  It is also reported that regulators urged some major banks to accelerate mortgage approvals in Q4.

    Now may be a good entry point in China A-shares by selecting sectors that are less likely to be subject to regulatory risks and companies with sound fundamentals. Learn more about opportunities to invest in China by exploring our ETFs, CETF and CNEW.

    VanEck Investments Limited ACN 146 596 116 AFSL 416755 (‘VanEck’) is the responsible entity and issuer of units in the [VanEck FTSE China A50 ETF (CETF) and the VanEck China New Economy ETF (CNEW). This is general advice only, not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Read the PDS and speak with a financial adviser to determine if the fund is appropriate for your circumstances. The PDS is available here. The Target Market Determination is available here.

    An investment in CETF or CNEW carries risks associated with: China; financial markets generally, individual company management, industry sectors, ASX trading time differences, foreign currency, sector concentration, political, regulatory and tax risks, fund operations, liquidity and tracking an index. See the PDS for details. No member of the VanEck group of companies guarantees the repayment of capital, the payment of income, performance, or any particular rate of return from any fund.