Consumer Spending Could Hint at Early Signs of China Recovery

Stronger-than-expected consumer spending in China could hint at early signs of a recovery as the country looks to jump-start its economy.

China is in the midst of dealing with slow economic growth due to a confluence of issues, including the lingering effects of a real estate slowdown. Additionally, deflation is also a macroeconomic issue, but despite these headwinds, consumers were still willing to spend during the month of August.

“Consumers spent more freely on cars and smartphones and splurged on summer travel, helping return inflation above zero in August after tipping into deflationary territory in July,” a Wall Street Journal report noted. “The urban unemployment rate edged down last month for the first time since April. Industrial output accelerated its gains.”

China’s government has taken steps to address its real estate issues first and foremost. This includes more lax lending requirements to try and get borrowers to prop up the real estate sector again, which comprises a sizeable portion of its economy.

Much has been said about whether the recent stimulus measures will make tangible improvements.

“Still, skeptics warn that it is too soon to say whether these green shoots will survive, and that Beijing must boost and broaden stimulus efforts to prevent a long-term slowdown from taking root,” the Wall Street Journal added, noting that the government will play a pivotal role in revitalizing the economy as the country’s “growth model remains stubbornly dependent on government-funded investments in infrastructure.”

2 China ETFs to Consider

In the meantime, as China works out its economic struggles, investors can take advantage of value propositions in Chinese equities. Given the recent uptick in consumer purchases, consider the KraneShares CICC China Consumer Leaders Index ETF (KBUY).

KBUY seeks to measure the performance of the CICC China Consumer Leaders Index. The index consists of the investable universe of publicly traded China-based companies. It focuses on those whose primary business is in the consumption-related industries such as home appliances, food and beverages, apparel and clothing, hotels, restaurants, and duty-free goods.

An economic recovery could also set up a play in the KraneShares CICC China Leaders 100 Index ETF (KFYP). The fund tracks the CSI CICC Select 100 Index, which takes a smart beta approach to systematically invest in companies listed in mainland China.

The strategy that KFYP employs is based on the China International Capital Corporation (CICC)’s latest research on the country’s capital markets. This quantitative approach reflects CICC’s top-down and bottom-up research process, seeking to deliver the 100 leading companies in mainland China.

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