China ETFs Could Continue to Thrive Through the Rest of the Year

While many global economies would like to forget Q2, for China, the second quarter kickstarted the country’s recovery from the Covid-19 pandemic. The country’s rebound in Q2 could likely continue throughout the rest of 2020.

“China’s transition from a stay-at-home economy to one that is experiencing a restrained reopening has been bumpy with intermittent spikes in cases across regions, resulting in the reinstatement of certain lockdown measures,” a Global X article noted, which highlighted the ETF provider’s Q2 2020 China Sector Report. “But the reopening so far has exceeded expectations as Chinese consumers shift parts of their lives online and factories move towards greater capacity utilization. By the end of the second quarter, China’s industrial capacity utilization rose 7.1 percentage points – up to 74.4% — and Beijing’s early efforts to spur a recovery started paying off. Transportation, industrial production, and consumption beat estimates, while China finished the quarter as the only major economy forecasted to have positive growth in 2020.”

To get exposure to China equities, Global X offers a number of ETFs that not only cater to the country via its largest equities, but investors can also get sector-specific. For broad exposure, ETF investors can use the Global X MSCI China Large-Cap 50 ETF (CHIL), which seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI China Top 50 Select Index.

CHIL invests at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index. The underlying index is designed to select the 50 largest equity securities, by free-float market capitalization, of the eligible China equity universe, as defined by the index provider.

CHIL Chart

CHIL data by YCharts

If investors do want specific exposure, they can pretty much throw darts at a board of China business sectors, unless it lands in the energy sector.

“With the exception of the Energy sector, all of the Global Industry Classification Standard (GICS) sectors in China generated positive returns in Q2 2020,” the article noted. “This is in stark contrast to Q1 when all 11 sectors had negative returns. The Health Care and Information Technology sectors were again the largest outperformers against the Broad China Index (MSCI China Index).1 In terms of contributions to overall returns in the MSCI China Index, the Consumer Discretionary sector played the greatest role as Chinese consumers resumed more normal consumption patterns.”

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