Getting Tactical With Chinese Stocks Could Be a Winning Strategy

Amid lingering stress in China’s construction and property sectors, broader benchmarks of Chinese equities are in the red on a year-to-date basis. Fortunately, there are signs of life. For example, the MSCI China Index is higher by 5% over the past month.

While that might not be the green light some market participants have been waiting for to embrace pure beta China strategies, it could signal that opportunity is afoot with more tactical fare, including the KraneShares CICC China Consumer Leaders Index ETF (KBUY). The fund follows the CICC China Consumer Leaders Index, an expansive gauge of Chinese consumer discretionary and staples stocks.

KBUY’s methodology and sector exposures could be relevant to investors looking to nibble at Chinese stocks. They can also avoid some of the industries that have been headwinds to the broader market upside in the world’s second-largest economy.

Why KBUY Matters Now

There’s no denying that China’s property market has been a dragger on other sectors there. However, the upside of that scenario is that some of the babies from other sectors that have been thrown out with the bathwater are more fundamentally sound than they’re being given credit for. That sentiment applies to some KBUY holdings.

KBUY could also benefit from Beijing taking steps to prop up the Chinese economy, which was necessitated by the aforementioned property market slump.

“The government is now really trying to put a floor on the downside with the help of monetary and fiscal easing. We are also seeing more assurance from the government. For example, we see local government employing more resources from the central government and pulling forward local government bond programmes,” noted BNP Paribas.

There are other supporting factors for KBUY. While there are concerns about China’s 2024 GDP growth rate, data indicate consumers are still dining out and traveling. That’s material to KBUY because the ETF is levered to the hotel/restaurant trade.

“Consumers still have a lot of money to spend. They have excess savings. How they spend is changing. It’s less about durable goods, less about luxury goods, more about experience-based consumption like travel, concerts, etc.,” added BNP Paribas.

As is the case in the U.S., Chinese consumers are embracing experiences over goods. And that’s expected to be a longer-ranging trend. That could have positive implications for funds such as KBUY.

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