China Consumer in Focus as Headwinds Turn to Tailwinds | ETF Trends

The issues that have plagued Chinese equities over the past two years, including a regulatory crackdown targeting consumer internet companies and strong coronavirus restrictions, are abating and, in the eyes of some market observers, turning to positive catalysts.

Stocks in the world’s second-largest economy are responding, as highlighted by a 6.34% year-to-date gain for the widely followed MSCI China Index. However, tactical investors may be able to generate superior returns with nuanced exchange traded funds such as the KraneShares CICC China Consumer Leaders Index ETF (KBUY).

KBUY debuted in December 2020, indicating that its holdings have endured their share of tumultuous market environments. As a result, the fund may be viewed as one of the more anonymous members of the expansive universe of U.S.-listed ETFs with exposure to China. However, the KraneShares fund could be ready to shed that image and, more importantly, could be an ideal avenue for accessing Chinese stocks in 2023.

“At 3%, annual GDP growth last year was slow, though fixed asset investment was still robust. We see consumption and infrastructure investment as the drivers of growth from here. Reviving growth and employment are key policy targets for Beijing in 2023, with policy shifting in favour of privately-owned enterprises (POEs) and a platform economy,” according to BNP Paribas research.

Those efforts speak to Beijing’s long-standing plans to drive more internal consumption, perhaps fashioning China’s economy more after those in the West that rely on consumer demand over volatile exports. KBUY is one of the China ETFs most levered to that theme.

While KBUY mixes both consumer cyclical and consumer staples holdings, the ETF’s exposure to the former vastly outpaces its exposure to the sleepier growth staples sector. As such, the fund could benefit from loosening of monetary policy by the People’s Bank of China.

“We expect to see more accommodative monetary policy and fiscal support to give rise to opportunities for us to pick up fundamentally solid long-term winners in the stock market at more reasonable valuations,” added BNP Paribas.

The French bank added that prices of goods aren’t likely to materially spike in China this year, indicating that inflation probably isn’t an issue the central bank there needs to tussle with over the near term. That could further support consumer spending, potentially benefiting some KBUY components along the way.

“A strong recovery in supply and manufacturing output, in combination with a moderate recovery in general demand, means China’s inflationary pressures should remain manageable in coming years,” concluded the bank.

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.