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Want A Piece Of China’s Powerful Growth? These 2 ETFs Can Deliver

Published 07/23/2020, 03:45 AM
Updated 09/02/2020, 02:05 AM

In early July, shares of many China-based companies hit their highest levels in recent weeks. The run-up in price followed a front-page editorial July 6th in the state-owned China Securities Journal, that effectively encouraged investors to purchase stocks, saying a "healthy bull market" would be good for the Chinese economy.

The Shenzhen Composite index, up about 30% year-to-date (YTD), is now at a level not seen since 2015. Similarly, the Shanghai Composite index has just made a new 52-week high, rising over 9% YTD.

This upswing in prices has left many wondering which Chinese stocks would be beneficial for long-term portfolios. Exchange-traded funds (ETF) focusing on the Chinese market facilitate investment in a basket of such stocks. Below we’ll take a deeper look at growth potential in the Chinese market and two ETFs that deserve further due diligence:

China's Growth Story Likely To Remain Intact

China—the world's most populous nation at approximately 1.43 billion—is the second-largest economy behind the US.

The long-term bullish expectations for Chinese stocks in this new decade is rather simple: a rising middle class, greater consumption and increased mobile user penetration are just a few of the catalysts expected to spur company revenues in China. For example, e-commerce has shown rapid-expansion in China in recent years, currently representing about 35% of the nation's $5.5 trillion retail market, while in the US, e-commerce accounts for only 11% of total retail sales.

Readers may recall that in parts of 2018 and 2019 the rhetoric around US-China trade war affected many Chinese stocks and equity funds, which were often further impacted by currency fluctuations.

When COVID-19 pandemic started to spread in early 2020, broader markets priced in a decline in Chinese economic activity. As a result, by early spring, many stocks hit lows not seen in several months, but the stellar run-higher since reminds us that the country may be on track for expansion again.

In the second quarter of 2020, the Chinese economy grew by 3.2% YoY after reporting a record 6.8% contraction in Q1. Although many analysts initially expressed growth concerns due to the pandemic's effects, China's economic fundamentals have improved considerably over the past several weeks.

With all that in mind, here are two exchange-traded funds that are worth considering for long-term portfolios.

1.Global X MSCI China Consumer Discretionary ETF

  • Current Price: $23.58
  • 52-week range: $14.35-$25.11
  • Dividend Yield: 0.67%
  • Expense Ratio: 0.65% per year, or $65 on a $10,000 investment.

The Global X MSCI China Consumer Disc ETF (NYSE:CHIQ) invests in 68 large- and mid-cap Chinese consumer companies. The top five sectors are Internet & Direct Marketing Retail Automobiles, Diversified Consumer Services, Hotels, Restaurants & Leisure, and Textiles, Apparel & Luxury Goods.

CHIQ tracks the MSCI China Consumer Discretionary 10/50 index, whose top five holdings include Meituan Dianping (OTC:MPNGF), JD.com (NASDAQ:JD), Alibaba (NYSE:BABA), TAL Education Group (NYSE:TAL), and NIO (NYSE:NIO), accounting for almost 40% of assets under management.

CHIQ Weekly Chart

The fund distributes dividends to stockholders semi-annually. YTD, CHIQ is up around 27.5%, meaning it’s in a bull market. Potential investors may consider buying the dips, especially if the price goes toward $21 or below

2. Invesco Golden Dragon China ETF

  • Current Price: $51.15
  • 52-week range: $30-$54.67
  • Dividend Yield: 0.25%
  • Expense Ratio: 0.70% per year, or $65 on a $10,000 investment.

The Invesco Golden Dragon China ETF (NASDAQ:PGJ) invests at least 90% of its total assets in equity securities of companies deriving a majority of their revenues from China. PGJ is based on the NASDAQ Golden Dragon China index.

The fund, composed of US exchange-listed companies that are headquartered or incorporated in China, includes 63 holdings operating in various sectors in China. The top five holdings are TAL Education Group, Baidu (NASDAQ:BIDU), NetEase (NASDAQ:NTES), JD.com, and Alibaba, which account for close to 40% of PGJ,

PGJ Weekly Chart

So far in 2020, PGJ is up 23%. As the current earnings season in the US rolls on, there may be some short-term profit-taking in the shares that make up the fund. A move toward $48 is likely.

Bottom Line

Given that China is the most populous country in the world, we can expect its economy to show resilience long-term despite occasional hiccups. ETFs offer opportunities to invest in the growing Chinese consumer, e-commerce and technology segments.

Latest comments

So many American are deceived by antichina political propaganda. Otherwise there etf would have gone double of 27% and 23%
Enjoyed reading your analysis. Thanks!
China is a criminal enterprise, you will not be investing but gambling on the availability of victims, willing or otherwise. China’s ability to exploit gulible capital is decreasing as the west awakens to the extent of its network of thieves and the breadth of its operations. There may be a bump in share prices, but China’s star is burning out.
Tu quoque arguments provide nothing meaningfull to the discussion. Corruption is everywhere, not nowhere will you find it more ingrained into the cultural foundation than Communist countries. Investing in CCP controlled territory is the same as opening your wallet to a thief...
for now. There are investments that do not require being robbed.
Real China is not like what you learned from the media.
NOKIA is the perfect alt. stock for exam. reputation not matched by many. and it is 5$.
Great view point....Not sure why Tencent (TCEHY) is not included.
Uncertain reliability in this market vs USA.
buy NOKIA, ota Finnish, ota cheap (still 5$) and its top3 player in 5g market.
and reputation, with new Finnish CEO, continues to be the topof the engineering game . Finland is a prof country, and here engineers make goid living, AND have Food qualitt life, that = dynamic synergy and innovative work. I think.
buy NOKIA. Finland has reputation like no other. It selkä a 5$ a stock in New York,3.9E in Helsinki. its best for a long-term investors. I know something about NOKIA, im Finnish, and Nokia's stockd have been solid all the time. Jos it is in top 3 5c players in the world.
nope.
Haters gonna hate but China will Grow 🇨🇳❣️
ummmmmm...no thanks. AMERICA FIRST!
making me laugh
I’d rather lose the opportunity than give those commies a single penny
open ur closet and check the clothes labels. they all MIC and U LIKE THEM.😏
are u sure? investment in China.
good info
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