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Chinese economy faces headwinds, but medium/long term prospects still attractive


Access to the Chinese equity market can be complex and limited, but exchange-traded funds have made it easier to access multiple corners of the market, with 132 China-focused products listed in 22 countries and USD38.8bn in AUM.

These ETFs offer access to both the onshore (A/B-share) and the offshore (e.g. H/N-share/Red/P-chips) market, as well as various sectors, styles, and strategies providing intra-day liquidity to investors around the globe.

The Chinese economy is currently experiencing an economic growth slowdown, and market participants around the world wonder whether Chinese authorities will be able to engineer a soft landing for the growth engine of the emerging world.

Deutsche Bank’s chief economist for Greater China, Jun Ma, expects a very weak recovery for the Chinese economy. And on the equity market side, while Ma does not expect a significant rebound in the near term, he remains positive on its medium-term outlook based on the market’s attractive valuations. With respect to sectors, he suggests insurance, luxury auto, power, health care and gas distribution.

Chinese regulators have made significant efforts to keep opening the local market to foreign investors. Most recently they increased the investment quota for QFIIs by USD50bn to USD80bn, and for RQFIIs by RMB50bn to RMB70bn. In addition, they reduced QFII eligibility requirements, streamlined review and approval procedures, and relaxed restrictions on the establishment of securities accounts by QFIIs, their investment scope and shareholding ratio.

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