These days, it is hard to get excited about China exchange traded funds. After all, the ongoing trade flap between the U.S. and China is weighing on riskier assets in both countries. It is also hard to get excited by China ETFs on days when those funds are tumbling.
In midday trading Monday, the Global X MSCI China Consumer Discretionary ETF (CHIQ) was lower by 4.70%, extending its May loss to over 11% and pushing the thematic ETF into bear market territory. Right now, those are not attractive traits, but CHIQ’s recent woes could be giving prescient investors a chance to embrace a fundamentally sound ETF at more attractive prices.
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.
Although Chinese stocks are currently battered, there is still a lot to like about the Chinese consumer investment thesis.
“There are also unique dynamics at play given the centrally-planned economy, the state’s ownership of major companies, regional power disputes, the US-China trade wars, and a rapidly growing middle class,” said Global X’s Chelsea Rodstrom in an interview with the New York Stock Exchange (NYSE). “Investors may also want to use China sector ETFs as a complement to the existing exposure they are gaining through broader emerging market funds.”
What’s Next for China
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.
When it comes to sector ETFs, many investors solely focus on domestic offerings, but there are other ways to tap sector-level opportunities, including China ETFs.
Investors considering China sector ETFs should note that there is likely to be dispersion among the various sectors, as is the case with domestic sector ETFs.
“A thread that runs through nearly all our China funds is the enormous and growing power of China’s consumer,” said Global X’s Rodstrom. “While past trends in China are not guaranteed to continue indefinitely, China has experienced years of high wage growth, a migration to cities, and an expansion of internet connectivity. In addition, the government has made consumption a priority as the economy transitions away from export-led industries. As a result, China now has a middle class that’s larger than the entire population of the United States and is spending time and money on various goods and services including travel and leisure, online shopping, social media, gaming, and health care.”
For more on thematic ETFs, please visit our Thematic Investing Channel.