China ETFs Plunge on Lack of Third Plenum Details

Joel Anderson  |

Chinese stocks and bonds dropped on Wednesday, taking China ETFs with them. The plunging stock markets were responding to a communique from the Communist Party following the completion of the Third Plenum of the 18th Central Committee. Markets were hoping for more detail on how the government would respond to flagging economic growth, but the communique provided none, remaining vague about the future of the country’s monetary policy.

China ETFs across the board were down as a result. The iShares FTSE China 25 Index Fund (FXI) plunged almost 1.5 percent, the iShares MSCI China Index Fund (MCHI) dropped almost 1 percent, and the SPDR S&P China ETF ($GXC) fell over 0.5 percent. The drop also caught up the iShares MSCI Taiwan Index Fund (EWT) , which fell almost 1 percent.

Chinese officials provided a broad road map for moving forward, stating in the communique that market forces would play a “decisive role” in decision on economic development in the future rather than the “core role” it had previously.

"The core is to handle the relationship between government and market, and let the market play the decisive role in allocating resources, and to better play the governmental role," the communique stated.

The shift towards a greater influence in market forces represents the first chance for President Xi Jinping, who assumed the leadership role in the Communist Party last year, to put his stamp on the Chinese economy.

“Based on the language of the communique, the government is putting equal emphasis on both the state and private sectors, which led to a pullback in stocks that investors had hoped would benefit from more privatization,” said Central China Securities analyst Zhang Gang.

The lack of specifics also shook investors.

"While the general approach is market-oriented, the absence of clear details is slightly disappointing," said VTB Capital’s global macro strategist Neil MacKinnon.

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