Count the Global X MSCI China Consumer Discretionary ETF (CHIQ) among the consumer cyclical ETFs benefiting from the e-commerce boom. CHIQ is higher by 28.59% year-to-date, confirming large exposure to Chinese online retail stocks is a positive trait in 2020.
CHIQ’s underlying index “incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, Red chips, P chips, and foreign listings, among others,” according to Global X.
CHIQ is also getting a lift from monetary policy as the People’s Bank of China (PBOC) takes action to support consumer spending in the world’s second-largest economy.
Some recent data points have shown signs of softness in the world’s second-largest economy, but Beijing is also taking steps to prop up consumption and the local economy. China has been looking to increase internal consumption to reduce the economy’s sensitivity to exports, and those efforts appear to be paying dividends. While some data points indicate the Chinese economy and consumer spending are slowing, policymakers remain proactive.
“The PBOC is actively looking to stimulate the economy through measures other than rate reductions,” said Global X in a recent note. “In March, the PBOC reduced reserve ratios by 0.5%-1% depending on the size of the bank in order to inject $79 billion into the economy. China indicated they may reduce this ratio further. Growth in credit being extended, particularly to households, is expected to rise further.”
CHIQ Catalysts
When it comes to sector ETFs, many investors solely focus on domestic offerings, but there are other ways to tap sector-level opportunities, including China ETFs. Investors considering China sector ETFs should note that there is likely to be dispersion among the various sectors, as is the case with domestic sector ETFs.
Based purely on sheer size, China’s Internet and mobile phone markets are substantially larger than those in the U.S. Additionally, brick-and-mortar infrastructure is slack in China, a sign that up-and-coming Chinese consumers are adept at and prefer to buy online. Importantly, CHIQ components are taking steps to lure buyers at a trying time for the world’s second-largest economy.
Other data points indicate Chinese consumers are making purchases of items that can be used at home due to strict travel controls in the country implemented due to COVID-19.
“Accommodative monetary policy, including central bank purchases of loans made to small business, as well as China’s focus on extending bank credit may spur additional growth in the second half of the year,” according to Global X.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.