Emerging markets are currently going through a roller coaster
ride in the wake of several factors plaguing these nations. Though
an over reliance on cheap foreign capital is certainly an issue
which has caused currencies to falter, internal causes such as a
lack of structural reforms, poor
, fiscal and current account deficits and political uncertainty are
also some of the key causes of concern.
Moreover, signs of slowdown in the most important emerging market
nation, China, are adding to the list of woes. Recently, Chinese
shares crumbled after the government announced
harsher-than-expected measures to curb the surge in property prices
Emerging Market ETFs: Any Bright Spots
Consequently, Chinese A shares, which track stocks listed on the
Shanghai or Shenzhen exchanges, have seen some rough trading in the
last few days. Though only Qualified Foreign Institutional
Investors and Renminbi Qualified Foreign Institutional Investors
have access to these shares, global investors can access these
markets via the ETF route (read:
China A-Shares ETFs Explained
The New Law
The Chinese government has increased the down payment as well as
the loan rates for buyers of second homes. The new law is currently
applicable for cities witnessing rapidly rising property prices.
This new measure is sending jitters across the market, as reduced
lending to the real estate industry is expected to have a ripple
effect on the other sectors of the Chinese economy. The measure is
thus expected to limit corporate earnings and dampen Chinese
The law comes close on the heels of stricter regulations for shadow
bank lending imposed by the government toward the beginning of the
year. The law seeks to curb increasing defaults in the shadow
banking sector - a system which operates outside the regulated
financial market. These regulations have been the major factors
affecting the country's property and banking sectors (read:
Inside the Struggling China A-Shares ETFs
In this backdrop, all major China-A shares ETFs were impacted by
property market issues. While
China A-Share Portfolio (
is down 3.9% in the last one month,
db X-trackers Harvest CSI 300 China A-Shares Fund
Market Vectors China ETF (
are both down over 1% each.
Moreover, these ETFs are still trading in the red since the start
of the year. CHNA is down 6.8%, while ASHR and PEK are down 9.5%
and 11.7% respectively.
Not only were the A-shares impacted, the turbulence in the Chinese
markets has hit other China ETFs as well. Large cap ETFs like
iShares China Large Cap ETF (
iShares FTSE China ETF (
are each down around 8% each since the beginning of the year (see
all the Asia-Pacific Emerging ETFs here
Thanks to slowdown concerns, property market bubble crises and debt
issues, the Chinese markets have been seeing a difficult 2014.
Though the new property law is certainly making investors nervous,
China is poised for its first domestic bond default.
A small Chinese company, Shanghai Chaori Solar Energy Science and
Technology Company, is likely to default on its annual interest
payment due tomorrow.
This further highlights the lurking debt problems in China. While
China managed to avert a possible default for a 'riskless'
investment product ahead of its new year, the fate of Shanghai
Chaori remains to be seen. In the shadow of these concerns, the
Chinese A shares ETF might continue to see more losses going
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DB-HRVST CSI300 (ASHR): ETF Research Reports
PWRSH-CHA A-S P (CHNA): ETF Research Reports
ISHARS-F CHINA (FCHI): ETF Research Reports
ISHARS-CHINA LC (FXI): ETF Research Reports
MKT VEC-CHINA (PEK): ETF Research Reports
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