Late Thursday, Chinese authorities cut the time frame travelers must spend in quarantine and reduced coronavirus testing mandates in what could be bullish signs that the world’s second-largest economy is rethinking its zero-COVID policy. Should Beijing proceed with further relaxation of that policy, or outright eliminate it, a bevy of China-specific exchange traded funds would likely benefit. One that could be near the top of that list is the KraneShares CICC China Consumer Leaders Index ETF (KBUY).
Yes, KBUY features exposure to both consumer staples and consumer discretionary stocks, but the ETF’s ample exposure to the latter sector makes it a credible play on what could be a massive reopening in China.
“If our estimates prove to be correct, the ‘reopening benefit’ could amount to US$2.6tn … in equity market capitalization terms,” wrote Goldman Sachs equity strategist Kinger Lau in a recent report. “While the reopening roadmap is still unclear, our reopening beneficiaries have outperformed the [MSCI China Index] by 20% since July.”
Yum China is one of the stocks in Goldman’s China reopening, and that name is a member of the KBUY roster. That stock is the ETF’s fifth-largest component at a weight of 5.53%. Several other KBUY holdings hail from industries that have been hampered by China’s zero-COVID policy.
“A third of the bank’s list of reopening beneficiaries is made up of companies in the hotels, restaurants and leisure sectors. Those domestically oriented, consumer-facing sectors have been among those hit hardest by China’s zero-Covid policy as tourism dried up,” reported Zavier Ong for CNBC.
Beyond Yum China, other KBUY holdings could benefit from an uptick in international travel with arrivals to mainland China likely to increase due to reduced quarantine periods.
“The suite of changes is the furthest-reaching overhaul of China’s virus approach since the pandemic began, and potentially marks the beginning of the country’s move to rejoin a world that’s living with the virus. Chinese stock gauges extended a rally on the news, while the yuan strengthened and commodities surged,” according to Bloomberg News.
Overall, China unveiled 20 new protocols aimed at dialing back elements of the zero-COVID policy. One that could give a boost to some KBUY components is Beijing asking local authorities to reduce large-scale coronavirus testing unless they believe cases are widespread in their regions. For the bulk of the pandemic, China has been committed to frequent mass testing.
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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.