Exchange-traded funds (ETF) issued in Taiwan linked to A-shares in China moved higher yesterday, as investors were encouraged by a strong rebound by Chinese stocks a session earlier, dealers said.
Buying in the ETFs showed optimism toward the movement of the equity market in China on expectations that the People’s Bank of China would pump more funds into the market to stimulate the economy, dealers said.
“These ETFs moved entirely in line with Chinese stocks after the Shanghai equity market breached 3,000 points again yesterday, staging a strong technical rebound from recent heavy losses,” Asia Securities Investment Consultant Co Ltd (亞洲投顧) analyst Chang Chih-cheng (張智誠) said.
The Shanghai Composite Index jumped 3.4 percent to close at 3,072.54 points on Thursday, in the largest gains since Dec. 4.
The Shanghai market had lost 5 percent in the previous two sessions on rumors that the Chinese government would come up with measures to cool equity prices.
Hopes that China’s central bank would ease liquidity have raised since Chinese media reported that the bank would not require banks to set aside reserves for deposits from non-bank financial institutions.
The market has estimated that the decision not to include deposits from non-bank financial institutions into bank reserve requirements would be equivalent to a cut in those requirements of 150 basis points — equivalent to releasing 1.96 trillion Chinese yuan (US$315 billion) into the market.
“It is very possible for the People’s Bank of China to adopt such measures, as they are gearing up to maintain ample liquidity in an attempt to divert these funds into the manufacturing sector to boost the economy. The equity market in China loves such an eased monetary policy,” Chang said. “Its strong rebound led buying to A-share linked ETFs in Taiwan.”
Chang said that he expects the China equity market to continue to move upward, “and so these ETFs are very likely to follow suit.”
Chang said the ETF buying came largely from local investors at a time when foreign institutional investors have been away from the trading floor over the Christmas period.
“Without aggressive buying by foreign institutional investors, the local bourse remained quiet. I expect today’s turnover will continue to be low,” Chang said.
On Thursday, trading volume on the local main board stood at only about NT$55.6 billion, the lowest in almost 15 months.
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