The Right ETF for China Now and Post-Coronavirus | ETF Trends

E-commerce is being touted as a beneficiary of the shelter-in-place lifestyle being experienced across the U.S. and some parts of China, but even as the latter says it’s notching fewer coronavirus cases and gradually reopening vital parts of its economy, online retail is poised to benefit.

That could be a catalyst for ETFs, such as 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 new coronavirus outbreak has significantly changed consumer behavior in China and could intensify the rivalry between Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in the low-priced online grocery segment, but the broader outlook for the year remains grim as customers shun high-priced discretionary goods,” reports S&P Global Market Intelligence.

Alibaba (NYSE: BABA) is CHIQ’s largest holding at 9.21% of the fund’s roster.

CHIQ and the Coronavirus

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.

“Alibaba and Tencent-backed Inc. reported that online sales of grocery, fresh produce and consumer essentials grew manifold during the quarantine, driving up the country’s online retail sales of physical goods by 3% to 1.123 trillion yuan in the first two months of the year,” according to S&P Global Market Intelligence. (NASDAQ: JD) is CHIQ’s second-largest holding at a weight of 9%.

Based purely on sheer size, China’s Internet and mobile phone markets are substantially larger than those in the U.S. Additionally, brick-and-mortar infrastructure is slack in China, a sign that up-and-coming Chinese consumers are adept at and prefer to buy online. Importantly, CHIQ components are taking steps to lure buyers at a trying time for the world’s second-largest economy.

“libaba, and Pinduoduo have pledged to waive commission rates and subsidize deliveries to help merchants overcome financial difficulties during the outbreak, which is likely to hit revenue. Platforms like Alibaba’s Taobao, which relies on advertising revenue instead of transaction fees, are also expected to be hit by low ad spend as the economy slows,” according to S&P Global Market Intelligence.

For more on thematic ETFs, please visit our Thematic Investing Channel.

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.