Despite the trade uncertainty, China is still a fast growing economy that international investors should not ignore. As investors look for ways to gain exposure to this new economy, one may consider targeted China country-specific exchange traded funds.
For example, ETF investors can look to a fund like the VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), which tries to reflect the performance of the SME-ChiNext 100 Index.
There are ways for investors to gain exposure to the evolution of the Chinese economy towards a consumer-based economy and away from an export focus. Specifically, VanEck argued that sectors primed to benefit the most from this shift include the consumer discretionary, consumer staples, health care, I.T., and healthcare industries.
“As China transitions towards a consumer-based economy, small and medium enterprises (SMEs) have sprung up to cater to these new and growing segments of the economy. The defining characteristic of these sectors is that their growth and profitability is primarily driven by consumer spending and habits (as opposed to government-directed spending and investment),” according to a VanEck note.
VanEck highlighted the SME-ChiNext 100 Index, which has a high concentration in these sectors, with almost 65% of the index concentrated there.
The SME-ChiNext 100 Index tracks the largest 100 names across the ChiNext and SME boards, both of which trade on the Shenzhen exchange. The ChiNext board was crafted to support innovation in emerging and high-tech sectors, raising capital for smaller, non-SOE companies. The SME Board was also created to allow small- and mid-sized companies more easily access capital and grow their business.
More importantly, these smaller companies on the two boards have comparatively smaller degrees of SOE overlap when compared to indices with the largest Chinese companies, which may provide another layer of diversification when investors look to Chinese equity exposure.
“The onshore Chinese market is broad and deep, and represents a wide variety of companies and industries. The same factors that drove China’s growth for the last 20 years may not continue in the future. With China’s transition to a consumer-led growth economy, a new set of companies is primed to benefit. Fortunately for investors who are seeking to tailor their China exposure to benefit from these changes, there are many ways to access the opportunities in the onshore market, including ETFs that provide exposure to targeted segments of the economy,” according to VanEck.
For more information on Chinese markets, visit our China category.
