As China continues its COVID recovery, economic indicators like manufacturing activity are starting to show remarkable signs of improvement. The VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT) is all ears.

CNXT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the SME-ChiNext 100 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index is a modified, free-float adjusted index intended to track the performance of the 100 largest and most liquid stocks listed and trading on the Small and Medium Enterprise (“SME”) Board and the ChiNext Board of the Shenzhen Stock Exchange. The SME-ChiNext Index is comprised of China A-shares.

CNXT gives investors:

  • A Consumer-Driven, “New Economy” Sector Focus: New Economy sectors such as information technology, consumer discretionary, consumer staples, and health care are well-represented in the Fund’s underlying index.
  • Exposure to Privately Owned Small- and Medium-Sized Enterprises (SMEs): Non-government owned small- and medium-sized enterprises have driven the majority of recent technological innovation and economic growth in China.
  • Historically High ROE: The underlying index has historically had a higher average Return on Equity (ROE) compared to China A-share small-cap benchmarks.

CNXT Chart

CNXT has already given investors plenty to cheer about. The fund is up over 50% YTD in 2020, according to Morningstar performance numbers.

Using a relative strength index (RSI) filter on its YTD chart, the fund is below overbought territory and above oversold territory. Traders looking for an entry-point may want to exercise patience. Long-term traders could be indifferent, as the fund has already proven its mettle with a 42% gain in 2019.

Manufacturing Activity Picks Up

A CNBC article noted a rise in manufacturing activity, which has been an ongoing trend in China:

“China said on Monday that manufacturing activity expanded for the ninth straight month in November as the world’s second-largest economy continues to recover from a slump caused by the coronavirus pandemic,” the article said. “The official manufacturing Purchasing Managers’ Index (PMI) for November came in at 52.1, according to the National Bureau of Statistics. That’s better than the 51.5 forecast by analysts in a Reuters poll and October’s official reading of 51.4.”

“PMI readings above 50 indicate expansion, while those below that signal contraction. PMI readings are sequential and show month-on-month expansion or contraction,” the article added. “China, where cases of Covid-19 were first detected, is among the few economies expected to continue growing this year — but at a much slow pace. The International Monetary Fund has forecast the Chinese economy to expand by 1.9% in 2020, slowing from the 6.1% last year.”

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