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The good, bad and ugly of Chinese markets

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ETF Securities Equity Research - The good, bad and ugly of Chinese markets China’s macroeconomic indicators are signalling a positive inflection point, however the debt overhang highlights a looming risk.

ETF Securities Equity Research – The good, bad and ugly of Chinese markets

Summary

  • China’s macroeconomic indicators are signalling a positive inflection point, however the debt overhang highlights a looming risk.
  • China needs to maintain the balancing act between its new consumption led economy and slowing investment driven economy to stem the pace of credit expansion.
  • Chinese stock market valuations are disguised by low earnings multiples of the state owned financial sector.
  • Greater transparency and clarity of communication about policy is the only way to draw international investors back to the Chinese Equity markets.

Green shoots emerging

ETFS1

Following a challenging start to 2016, official macroeconomic data released by China, ranging from GDP, fixed asset investment, industrial production and retail sales (led by auto and internet sales) are now suggesting that the economy may in fact be at an inflection point. A concerted government effort to restore growth in the real estate sector via cuts in mortgage rates, down payments and a surge in lending has driven a rebound in housing sales. Rising ‘floor space started’ has also provided evidence that growth in construction is catching up. Overall business activity in China expanded for a second straight month in April albeit at a slower pace than March. The rate of new orders growth was the strongest seen in three months.
(click to enlarge)
Clearly a domestic consumption driven economy is trying to fill the gap left behind by manufacturing activity. While an uptick in the majority of the macro indicators are signs of green shoots emerging, China’s persistent and rising debt load poses a serious threat to the economy.

237% and counting

ETFS2

Debt has been financing the extraordinary growth rates that China has sustained so far. China’s credit growth has surged to 237% of GDP today from 164% in 2008, far above emerging market counterparts and is still growing. While there are countries with higher debt levels, the reason for concern in China’s case is the recent pace of credit growth, coupled with the declining quality. The dilemma facing the Chinese government is whether the new consumption led economy can support growth if credit is cut off from the private sector. In 2016, China faces a record 3.7tn yuan (US$567bn) of local bond maturities through year-end and this comes amidst deteriorating investor sentiment following news of seven companies reneging on their obligations so far this year. Non-performing loans (NPLs) have reached a record 1.3tn Yuan and account for 1.7% of total loans, and anecdotal evidence suggests this number is higher than disclosed. While most countries have seen their NPL loan growth decline recently, China remains an exception as highlighted in the chart below.
(Click to enlarge)

Back in 1999, specially created asset management companies relieved the big four state banks by buying these NPLs with government backed 10-year bonds. China’s rapid pace of expansion in the 10 years since 1999 helped shrink the debt levels from 20% to nearly 5% of GDP. However, since the maturity of those bonds came in the midst of the financial crisis in 2009, it seemed prudent at the time to roll over their maturities (to 2019) rather than recognize the losses. The Chinese authorities have recently announced their intention to deal with these non-performing loans in the banking sector with an Equity-for-Debt Swap (EDS) and securitisations of NPLs. The EDS will enable banks to swap bad loans on their books for equity stakes in the stressed corporates. While this will certainly allow banks to reduce the need to provision for loan losses aiding better use of their capital, it is hard to assess the time it will take for the stressed corporates to recover. We believe these are not comprehensive solutions by themselves and simply delay the inevitable to a later date.

Margin trading magnified market volatility

Stratospheric margin lending up 3057% since September 2012 – fuelled the MSCI China A shares index to attain a record high 5458.9pts in June 2015.

ETFS3

The balance of margin financing outstanding as a percentage of market capitalisation in June 2015 reached a record 4.09%.

ETFS4

These high levels of leverage explain the fast run up to the peak and its subsequent decline thereafter. Rising stock prices made it easy to repay margin interest rates however when these stocks reversed their trend, investor losses exceeded their margin payments forcing them to liquidate their equity holdings and exacerbate the downward slide. In an effort to contain these risks, the securities regulator capped the size of margin trading and short selling for the first time at 4x a brokerage’s net capital. Since the start of 2016 the outstanding balance of margin transactions has declined by 35% and has had a direct repercussion on the market.

Market meddling leads to lacklustre trading

Chinese stock markets got off to a turbulent start in 2016 that forced it to suspend trading activity twice in a matter of a week after 7% declines tripped a new circuit breaker mechanism. While the initial intention was to avoid panic selling, it appeared counterproductive forcing the mechanism to be withdrawn just days after being introduced. The lack of transparency from the stock market regulator caused more harm than good resulting in a loss of investor confidence.

Equity valuations not so cheap

The MSCI China A Shares Index currently trades at 18x earnings – seemingly attractive on the surface. The reality is that financial stocks, which account for 35% of the index, tend to deflate the index valuations due to their low valuations, at 4x earnings. By stripping out the financial sector and applying the valuation gap (difference in P/E’s of MSCI China A shares index excluding financials and the MSCI China Financial Index) we obtain a more realistic valuation of 28x earnings for the MSCI China A shares index.

Conclusion

While there is rising evidence that a majority of macroeconomic indicators are benefiting from China’s accommodative monetary policy, we believe it will eventually have to contend with its rising debt load. Credit expansion has expanded at an alarming rate, this coupled with the declining quality of debt makes it imperative for China to transition from an investment to a consumption driven economy. The lack of clarity and transparency by Chinese stock market regulators has subdued investor sentiment. From a timing perspective, Chinese stock markets are not as cheap as they appear since their valuations are flattered by financial stocks. For the time being we remain cautious on Chinese equities until the emerging green shoots become more established.

Important Information

General

This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

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AK8G ETF köper tyska statsobligationer med förfall 2027

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Amundi Fixed Maturity 2027 German Bund Government Bond UCITS ETF Dist (AK8G ETF) med ISIN LU2780871823 försöker spåra FTSE German Government 2027 Maturity index. FTSE German Government 2027 Maturity Index följer tyska statsobligationer. Indexet speglar inte ett konstant löptidsintervall (som är fallet med de flesta andra obligationsindex). Istället ingår endast obligationer som förfaller under det angivna året (här: 2027) i indexet. Betyg: AAA. Löptid: december 2027 (Denna ETF kommer att stängas efteråt).

Amundi Fixed Maturity 2027 German Bund Government Bond UCITS ETF Dist (AK8G ETF) med ISIN LU2780871823 försöker spåra FTSE German Government 2027 Maturity index. FTSE German Government 2027 Maturity Index följer tyska statsobligationer. Indexet speglar inte ett konstant löptidsintervall (som är fallet med de flesta andra obligationsindex). Istället ingår endast obligationer som förfaller under det angivna året (här: 2027) i indexet. Betyg: AAA. Löptid: december 2027 (Denna ETF kommer att stängas efteråt).

Den börshandlade fondens TER (total cost ratio) uppgår till 0,09 % p.a. Amundi Fixed Maturity 2027 German Bund Government Bond UCITS ETF Dist är den enda ETF som följer FTSE German Government 2027 Maturity index. ETFen replikerar det underliggande indexets prestanda genom fullständig replikering (köper alla indexbeståndsdelar). Ränteintäkterna (kuponger) i ETFen delas ut till investerarna (halvårsvis).

Denna lanserades den 25 april 2024 och har sin hemvist i Luxemburg.

Investeringsmål

Amundi Fixed Maturity 2027 German Bund Government Bond UCITS ETF Dist försöker replikera, så nära som möjligt, utvecklingen av FTSE German Government 2027 Maturity Index (”Indexet”) oavsett om trenden är stigande eller fallande, och att minimera tracking error mellan delfondens nettotillgångsvärde och indexets utveckling. Den förväntade nivån av tracking error under normala marknadsförhållanden anges i delfondens prospekt. Indexet är ett totalavkastningsindex: de kuponger som betalas av indexbeståndsdelarna ingår i indexavkastningen.

Handla AK8G ETF

Amundi Fixed Maturity 2027 German Bund Government Bond UCITS ETF Dist (AK8G ETF) är en europeisk börshandlad fond. Denna fond handlas på Deutsche Boerse Xetra.

Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnet, Aktieinvest och Avanza.

Börsnoteringar

BörsValutaKortnamn
XETRAEURAK8G

Största innehav

Denna fond använder fysisk replikering för att spåra indexets prestanda.

NamnValutaVikt %Sektor
GERMANY BRD 0.5% 15AUG27EUR20,03 %Statsobligationer
FEDERAL REPUB BOBL 1.3% 15OCT27EUR19,02 %Statsobligationer
GERMANY BRD 0.25% 15FEB27EUR18,75 %Statsobligationer
FEDERAL REPUB BOBL % 16APR27EUR13,37 %Statsobligationer
FEDERAL REPUB BRD % 15NOV27EUR13,21 %Statsobligationer
GERMANY BRD 6.5% 04JUL27EUR10,55 %Statsobligationer
FEDERAL REPUB BOBL 1.3% 15OCT27EUR5,07 %Statsobligationer

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FLXS ETF är ett sätt att få exponering mot Saudiarabien

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Franklin FTSE Saudi Arabia UCITS ETF (FLXS ETF) med ISIN IE000C7DDDX4, försöker följa FTSE Saudi Arabia 30/18 Capped-index. FTSE Saudi Arabia 30/18 Capped-index följer den saudiarabiska aktiemarknaden. Den största positionen i indexet är begränsad till en vikt på 30 procent. Alla andra bolag i indexet är begränsade till 18 procent.

Franklin FTSE Saudi Arabia UCITS ETF (FLXS ETF) med ISIN IE000C7DDDX4, försöker följa FTSE Saudi Arabia 30/18 Capped-index. FTSE Saudi Arabia 30/18 Capped-index följer den saudiarabiska aktiemarknaden. Den största positionen i indexet är begränsad till en vikt på 30 procent. Alla andra bolag i indexet är begränsade till 18 procent.

Den börshandlade fondens TER (total cost ratio) uppgår till 0,39 % p.a. Franklin FTSE Saudi Arabia UCITS ETF är den enda ETF som följer FTSE Saudi Arabia 30/18 Capped-index. ETF:n replikerar det underliggande indexets prestanda genom fullständig replikering (köper alla indexbeståndsdelar). Utdelningarna i ETFen ackumuleras och återinvesteras.

Denna ETF lanserades den 28 oktober 2024 och har sin hemvist i Irland.

Sammanfattning av fondens mål

Fondens mål är att ge exponering mot stora och medelstora aktier i Saudiarabien. Fonden strävar efter att följa resultatet för FTSE Saudi Arabia 30/18 Capped Index-NR (”Indexet”) så nära som möjligt, oavsett om indexnivån stiger eller faller, samtidigt som man försöker minimera spårningen så långt som möjligt felet mellan fondens och indexets resultat.

Handla FLXS ETF

Franklin FTSE Saudi Arabia UCITS ETF (FLXS ETF) är en europeisk börshandlad fond. Denna fond handlas på flera olika börser, till exempel Deutsche Boerse Xetra och London Stock Exchange.

Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnet, Aktieinvest och Avanza.

Börsnoteringar

BörsValutaKortnamn
Borsa ItalianaEURSAUDI
XETRAEURFLXS
London Stock ExchangeUSDKSA

Största innehav

VärdepapperSektorVikt %
AL RAJHI BANKFINANS14,53
AL RAJHI BANKFINANS14,53
SAUDI ARABIAN OIL COENERGI10,02
SAUDI ARABIAN OIL COENERGI10,02
THE SAUDI NATIONAL BANKFINANS7,73
THE SAUDI NATIONAL BANKFINANS7,73
ACWA POWER COUTILITIES6,83
ACWA POWER COUTILITIES6,83
SAUDI TELECOM COKOMMUNIKATIONSTJÄNSTER6,01
SAUDI TELECOM COKOMMUNIKATIONSTJÄNSTER6,01

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HODL fyller sex år

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HODL fyller sex år! 🎉 21Shares var den första emittenten att erbjuda en fysisk krypto-ETP-korg i Europa. Denna lanserades när BTC handlades till 4 400 $. Idag svävar den runt $91 000! Upptäck mer om HODL (eller 21XH som den också kallas beroende på börs) och dess resa.

HODL fyller sex år! 🎉 21Shares var den första emittenten att erbjuda en fysisk krypto-ETP-korg i Europa. Denna lanserades när BTC handlades till 4 400 $. Idag svävar den runt $91 000! Upptäck mer om HODL (eller 21XH som den också kallas beroende på börs) och dess resa.

Handla 21XH ETP

21Shares Crypto Basket Index ETP (21XH ETP) är en europeisk börshandlad kryptovaluta. Denna ETP handlas på flera olika börser, till exempel Deutsche Boerse Xetra och Euronext Amsterdam.

Det betyder att det går att handla andelar i denna ETP genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnetAktieinvest och Avanza.

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Detta dokument är inte ett erbjudande att sälja eller en uppmaning till ett erbjudande att köpa eller teckna värdepapper i 21Shares AG i någon jurisdiktion. Exklusivt för potentiella investerare i alla EES-medlemsstater som har implementerat Prospektförordningen (EU) 2017/1129, görs Emittentens Grundprospekt (EU) tillgängligt på Emittentens webbplats under www.21Shares.com.

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