Easing Lockdown Restrictions Could Fuel Gains for This China Energy ETF

The Chinese government appears to be easing lockdown restrictions after a recent surge in COVID-19 cases, which could once again re-open the economy and fuel energy exchange traded funds (ETFs) that focus on the country’s energy sector.

One of the areas that could benefit from this economic reopening of sorts is the energy sector. With the travel industry ready to pick up where it left off prior to the surge in COVID-19 cases, fuel will be necessary in order to meet demand for travel.

“Road and air traffic in China, the world’s second-biggest oil consumer, has rebounded sharply after a significant easing in the country’s COVID-19 restrictions, boosting the outlook for fuel demand and supporting crude prices,” a Reuters report said. “After almost three years of pursuing a policy targeting zero COVID cases, China last week abandoned many key curbs, including dropping frequent virus testing, relaxing quarantine rules and scrapping travel tracking.”

Diversified Energy ETF Exposure

The U.S. energy industry has certainly benefited from a strong 2022, but there’s no guarantee it will remain the same in 2023. As such, it’s necessary to get diversified exposure to help mitigate the potential volatility in the energy sector with exchange traded funds (ETFs) such as the Global X MSCI China Energy ETF (CHIE).

The goal is to capture exposure abroad where the energy sector is experiencing strength while the U.S. energy sector could be languishing in the new year. That said, China is a prime option with its economic reopening.

“Given the faster pace of reopening, we now expect mobility to normalise – reaching the June-July 2022 levels – by end-March 2023 versus our prior expectation of May/June,” Morgan Stanley analysts noted in the Reuters report.

CHIE seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI China Energy IMI Plus 10/50 Index. The underlying index tracks the performance of companies in the MSCI China Investable Market Index (the “parent index”) that are classified in the energy sector, as defined by the index provider.

CHIE gives investors:

  1. Targeted exposure: CHIE is a targeted play on the energy sector in China — the world’s second-largest economy by GDP.
  2. ETF efficiency: In a single trade, CHIE delivers access to dozens of energy companies within the MSCI China Index, providing investors an efficient vehicle to express a sector view on China.
  3. 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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