As Global Inflation Eases, China Could Be at Forefront of Rally

China’s economy was already reeling last year following a real estate development crisis, but inflation and a resurgence of COVID-19 have already made 2022 a forgettable year for the second-largest economy. However, the country could be at the forefront of a rally should inflation fears ease.

An economic slowdown is not privy to just China. A broader global slowdown is letting the air out of inflationary pressures, with global inflation easing 0.3% during the month of July versus an average of 0.7%, per a Wall Street Journal report.

“Weaker global demand in the face of diminished purchasing power through the past year is now driving disinflation through two main channels,” said Nora Szentivanyi, a global economist at JP Morgan, also noting with her colleagues that falling commodity and goods prices will lower global inflation to an annualized rate of 5% during the second half of 2022, which is almost half of the 9.7% in the second quarter.

A Rise in Consumer Discretionary Spending?

As global inflationary pressures ease and consumer confidence returns, China could also be in the forefront of a universal spending spree. As such, consumer discretionary spending could see a rise in China, opening the pathways for opportunities in Global X exchange traded funds (ETFs).

One fund that could be an intriguing play is the Global X MSCI China Consumer Discretionary ETF (CHIQ). 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 fund jumped 17% higher in the midst of a summer rally during the month of June. If a global market rally ensues as inflation fears dissipate, CHIQ could see renewed strength, making it a value option at its current price.CHIQ Chart

CHIQ offers investors:

  • Targeted exposure: CHIQ is a targeted play on the consumer discretionary sector in China — the world’s second-largest economy by GDP.
  • ETF efficiency: In a single trade, CHIQ delivers access to dozens of consumer discretionary companies within the MSCI China Index, providing investors with an efficient vehicle to express a sector view on China.
  • All share exposure: The 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.

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