Among the Chinese Communist Party’s long-running economic plans is an effort to reduce the country’s dependence on exports while driving more internal consumption.
Not surprisingly, many global investors are enthusiastic about the long-term implications of the rising consumer — a theme accessible via select exchange traded funds, including the KraneShares CICC China Consumer Leaders Index ETF (KBUY).
KBUY follows the CICC China Consumer Leaders Index, and there are signs of enthusiasm for the China consumer story emerging to start 2023, as the KraneShares ETF is higher by more than 6% year-to-date. Adding to the KBUY investment thesis is the point that boosting consumer spending is a top priority for President Xi Jinping. At a recent economic meeting, Xi noted that rising consumer expenditures are key to “fully unleash the consumption potential.”
“It’s necessary to boost consumer credit, he said, calling for more to be done to improve the spending power of low- and middle-income residents, who have a high propensity to spend but have taken a hit from the Covid-19 pandemic,” reported Wang Xitong for Caixin Global.
KBUY is a relevant idea on this front because, just four years ago, China’s total retail sales topped those notched in the U.S., underscoring the benefits of the world’s largest population and a rising middle class. Those are themes with long-term potency, indicating that KBUY could be solid idea for tactical position. Plus, the ETF could be at the right place at the right time.
“Boosting domestic consumption is important for China’s post-pandemic recovery as demand from the world’s three largest importers of Chinese goods — the U.S., the EU and Southeast Asia — has weakened as high inflation weighs on global consumers’ purchasing power,” according to Caixin.
KBUY represents a unique play on the theme of elevated consumer spending in China, which is the world’s second-largest economy, because it features exposure to both consumer sectors. In fact, the KraneShares fund damps some of the volatility associated with dedicated consumer cyclical funds because it allocates almost 64% of its weight to staples stocks.
However, that doesn’t diminish KBUY’s long-term potential because as incomes rise and more Chinese consumers enter the middle class, they’re willing to pay up for select brands, including staples, developing long-term brand loyalty along the way. That could underpin the thesis for an array of KBUY consumer staples components.
For more news, information, and analysis, visit the China Insights Channel.
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.