When it comes to shopping holiday holidays that impact ETFs with exposure to Chinese e-commerce giants, Singles Day usually takes the cake, but the Global X MSCI China Consumer Discretionary ETF (CHIQ) could get a lift from another occasion.
CHIQ’s underlying index “incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, Red chips, P chips, and foreign listings, among others,” according to Global X.
The mid-year 618 shopping festival could bring good tidings for CHIQ components, such as Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD), among others.
“The three largest Chinese e-commerce companies — Alibaba Group Holding Ltd., JD.com Inc., and Pinduoduo Inc. — all reported slower revenue growth for the first quarter of 2020, the period that covered the worst of the pandemic,” reports S&P Global Market Intelligence. “Soaring demand in some categories, such as online groceries, did not translate to better margins as logistics subsidies, commission waivers for marketplace merchants and extra costs incurred from protective equipment ate into profits.”
618, Obscure but Impactful
Some recent data points have shown signs of softness in the world’s second-largest economy, but Beijing is also taking steps to prop up consumption and the local economy. China has been looking to increase internal consumption to reduce the economy’s sensitivity to exports, and those efforts appear to be paying dividends. While some data points indicate the Chinese economy and consumer spending are slowing, policymakers remain proactive.
While the 618 festival may not be a marquee event in the eyes of American investors, that doesn’t diminish the potential potency of the event or the benefits that could be accrued by CHIQ.
“Although sales volumes have historically paled in comparison with the Singles Day shopping bonanza on Nov. 11, this year’s 618 event, which runs for the first 18 days of June, could very well be an indicator of the recovery of Chinese consumption, particularly through online outlets,” according to S&P Global Market Intelligence. “The festival was initiated by JD.com as its anniversary celebration, though rivals including Alibaba, Suning.com, and Pinduoduo have offered their own promotions in recent years. For JD.com, a sales boost would be well-timed with its debut on the Hong Kong stock exchange slated for June 18.”
For its part, JD.com, CHIQ’s third-largest holding, is putting its money where its mouth when it comes to the 618 festival.
“In a move to ensure that consumers spend on higher margins items rather than daily essentials, JD.com is working with the Beijing municipal government to distribute 12.2 billion yuan worth of vouchers for electrical appliances,” reports S&P Global Market Intelligence. “The company is counting on ‘hundreds of billions of discounts’ offered at this festival to help deliver 20% to 30% revenue growth in the second quarter.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.