The Chinese stock market was ravaged by extreme volatility for the last one year due to one reason or another. It witnessed massive single-day plunges during this timeframe. Events like sudden currency devaluation, intense slowdown in the manufacturing sector, overvaluation concerns and tightening of rules for margin lending resulted in some horrendous selloffs.
The Chinese market also started 2016 with a trading halt, with the indexes diving 7%. However, the scenario has recovered a lot since then, with volatility in China equities petering out to 15-month lows lately (read: China ETF Investing: Will it Buoy up or Dip Down in 2016?).
Behind the Easing Volatility
Following prolonged sluggishness, the economy posted growth in factory output from March. Though activity pickup in April slowed from March – from 50.2 to 50.1– the visibility of sheer growth must have calmed the nerves of edgy investors. Any reading at or above 50 suggests expansion in activity (read: Global Manufacturing Picks Up: ETFs to Watch).
Moreover, trading volumes were on the lower side, as per Bloomberg. Excessive shakeups in the market in the recent past may have kept jittery investors from wholehearted participation in the market. As per analysts, Chinese equities have been range-bound this month thanks to worries over the economy’s growth prospects.
Having said this, investors are still worried about the possible devaluation in yuan especially if the Fed hikes sooner than expected and the greenback strengthens. And the economic footing is yet to be firm in China.
Against this backdrop, investors need to be cautious while picking stocks and ETFs targeted to at the China investing. Below we have highlighted a few China ETFs that are likely to gain even in a choppy market.
Internet – Guggenheim China Technology ETF (CQQQ)
Investors should note that Goldman Sachs (NYSE:GS) believes, for the first time in about six years, that the China internet space is a solid bet. These companies are now well-positioned to earn profits, rising from the tough days of stiff competition, struggle to grow user base and pressure to deal with new entrants (read: Investors Cheer Alibaba (NYSE:BABA) Revenue Growth: ETFs in Focus).
Goldman Sachs predicts China’s internet space (ex-financials) to expand at an annualized 20% rate and generate $70 billion in profits by 2020. The brokerage house is especially upbeat on companies like Alibaba, Baidu and Tencent. In our view, U.S. tech companies maybe are ruling the world, but Chinese tech leaders are also making fast forays (read: Can the Year of Monkey Bring Fortune to China ETFs?).
These fundamentals have put technology ETFs like CQQQ, Global X NASDAQ China Technology ETF (QQQC) and KraneShares CSI China Internet ETF (KWEB) in focus.
Consumer – China Consumer ETF (CHIQ)
The consumer staples segment is relatively proof to economic cycles as it performs steady even in a downturn. Moreover, in October 2015, China practiced a demographic reform by scrapping its decades-long infamous one-child policy. Concerns over China's ageing population and the resultant shortage of workers and consumers prompted this move.
All these should prompt the consumer fund CHIQ. However, CHIQ gives a mixed exposure to the entire consumer segment, including both discretionary and staples. Retailing (25.3%), Food Beverage & Tobacco (18.6%), Automobiles & Components (16.5%) and Consumer Durables & Apparel (10.6%) are the top four segments of the fund.
All-Cap – Guggenheim China All-Cap ETF (YAO)
The fund is heavy on financials (34.3%) and information technology (25.1%). Moreover, telecommunication services (6.7%) and consumer staples (3.4%) have a certain exposure in the fund. Since these sectors have caught investors’ attention lately, the fund YAO may perform decently ahead, at least as long as the present market dynamics remain in place.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
GUGG-CHINA TEC (CQQQ): ETF Research Reports
GLBL-X NDQ CHIN (QQQC): ETF Research Reports
KRANS-C CHN INT (KWEB): ETF Research Reports
GLBL-X CHIN CON (CHIQ): ETF Research Reports
GUGG-CHINA AC (YAO): ETF Research Reports
Original post
Zacks Investment Research
The Chinese market also started 2016 with a trading halt, with the indexes diving 7%. However, the scenario has recovered a lot since then, with volatility in China equities petering out to 15-month lows lately (read: China ETF Investing: Will it Buoy up or Dip Down in 2016?).
Behind the Easing Volatility
Following prolonged sluggishness, the economy posted growth in factory output from March. Though activity pickup in April slowed from March – from 50.2 to 50.1– the visibility of sheer growth must have calmed the nerves of edgy investors. Any reading at or above 50 suggests expansion in activity (read: Global Manufacturing Picks Up: ETFs to Watch).
Moreover, trading volumes were on the lower side, as per Bloomberg. Excessive shakeups in the market in the recent past may have kept jittery investors from wholehearted participation in the market. As per analysts, Chinese equities have been range-bound this month thanks to worries over the economy’s growth prospects.
Having said this, investors are still worried about the possible devaluation in yuan especially if the Fed hikes sooner than expected and the greenback strengthens. And the economic footing is yet to be firm in China.
Against this backdrop, investors need to be cautious while picking stocks and ETFs targeted to at the China investing. Below we have highlighted a few China ETFs that are likely to gain even in a choppy market.
Internet – Guggenheim China Technology ETF (CQQQ)
Investors should note that Goldman Sachs (NYSE:GS) believes, for the first time in about six years, that the China internet space is a solid bet. These companies are now well-positioned to earn profits, rising from the tough days of stiff competition, struggle to grow user base and pressure to deal with new entrants (read: Investors Cheer Alibaba (NYSE:BABA) Revenue Growth: ETFs in Focus).
Goldman Sachs predicts China’s internet space (ex-financials) to expand at an annualized 20% rate and generate $70 billion in profits by 2020. The brokerage house is especially upbeat on companies like Alibaba, Baidu and Tencent. In our view, U.S. tech companies maybe are ruling the world, but Chinese tech leaders are also making fast forays (read: Can the Year of Monkey Bring Fortune to China ETFs?).
These fundamentals have put technology ETFs like CQQQ, Global X NASDAQ China Technology ETF (QQQC) and KraneShares CSI China Internet ETF (KWEB) in focus.
Consumer – China Consumer ETF (CHIQ)
The consumer staples segment is relatively proof to economic cycles as it performs steady even in a downturn. Moreover, in October 2015, China practiced a demographic reform by scrapping its decades-long infamous one-child policy. Concerns over China's ageing population and the resultant shortage of workers and consumers prompted this move.
All these should prompt the consumer fund CHIQ. However, CHIQ gives a mixed exposure to the entire consumer segment, including both discretionary and staples. Retailing (25.3%), Food Beverage & Tobacco (18.6%), Automobiles & Components (16.5%) and Consumer Durables & Apparel (10.6%) are the top four segments of the fund.
All-Cap – Guggenheim China All-Cap ETF (YAO)
The fund is heavy on financials (34.3%) and information technology (25.1%). Moreover, telecommunication services (6.7%) and consumer staples (3.4%) have a certain exposure in the fund. Since these sectors have caught investors’ attention lately, the fund YAO may perform decently ahead, at least as long as the present market dynamics remain in place.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
GUGG-CHINA TEC (CQQQ): ETF Research Reports
GLBL-X NDQ CHIN (QQQC): ETF Research Reports
KRANS-C CHN INT (KWEB): ETF Research Reports
GLBL-X CHIN CON (CHIQ): ETF Research Reports
GUGG-CHINA AC (YAO): ETF Research Reports
Original post
Zacks Investment Research