Markets closed today as fears about bank risk on both sides of the Atlantic caused heightened volatility, overshadowing the positive economic data released in China for the first two months of the year. The data indicates that China is in a cautious recovery mode and there have been hints of supportive rhetoric in favor of boosting consumer spending in the coming months that make investing in the recovery of consumers in China an area of opportunity for advisors and investors.
Chinese New Year meant that January and February’s economic data was rolled together in one report just released by the National Bureau of Statistics with retail sales hitting expectations at a 3.5% year-over-year growth according to Brendan Ahern, CIO of KraneShares, in the China Last Night blog. Other areas of China’s economy continue to look healthier as well: fixed asset investments were up 5.5% y-o-y on expectations of 4.5% and property investment only fell -5.7% on the expected loss of -8.5%.
Online retail sales of physical goods rose 5.3% y-o-y, convenience stores gained 10% over the same period, and restaurant sales rose 9.2% y-o-y. There were misses in automobiles (a drop of -9.4%) and household electronics fell -1.9%, but overall consumers in China appear to be cautiously on the move once more.
While the report was positive, the National Bureau of Statistics indicated that there is still room for stronger improvement: “The recovery trend of the consumer in January-February is relatively good. However, we also see that residents’ willingness to consume still needs to be enhanced, consumption conditions need to be improved… relevant policies to promote consumption will continue…”
In other words, policy support could be coming, according to Ahern, and aligns with the strong rhetoric that came recently out of the National Party Congress with a focus on the expansion of domestic demand, prioritizing consumers.
Investing in the Recovery of China’s Consumers With KBUY
The KraneShares CICC China Consumer Leaders Index ETF (KBUY) is positioned to benefit from the recovery of China’s consumers this year, with positive policy support likely to encourage economic gains. The fund is up 4.27% YTD as of 03/14/2023 and is trading above its 200-day Simple Moving Average, a buy signal for trend followers.
KBUY tracks the CICC China Consumer Leaders Index, which invests in the publicly traded, China-based companies that make up the consumer industries in the country. These include apparel and clothing, hotels, restaurants, home appliances, food and beverage, and duty-free goods.
KBUY’s index selects the top 30 companies ranked by their long-term operating income and cash flow, market cap, long-term return on equity, and long-term gross profit. These companies are included in the index and weighted by free-float market cap, with no singular company representing more than 15% of the underlying index.
KBUY carries an expense ratio of 0.68%.
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