One “benefit” of a “Big Brother” state is the ability to control the population.
China has played to this advantage, getting a fast handle on the coronavirus with early lockdowns, tracking and containment.
Result? Almost zero reported cases of COVID-19 currently.
That means the country has been able to recover and reopen much earlier than many other nations, including the United States.
But in the aftermath of the pandemic, a speedy return to full-on globalization is unlikely. Nevertheless, Asia had already been moving towards more regional manufacturing and consumption …
“There has been a focus in China on domestic consumption, and this has been a positive economic influence for the countries that surround [China], stimulating local trade and creating a vibrancy in the region,” says Matthew Strauss, vice-president and portfolio manager with CI Investments Inc.
So, here are six ways you can play China’s recovery.
Take a look …
Pick 1: The iShares China Large–Cap ETF (NYSE: FXI) is how most investors tap into the Chinese market. It tracks the FTSE China 50 Index (large-cap Chinese equities trading on the Hong Kong Stock Exchange, or ‘H-shares’). Its high liquidity makes it a good choice for short-term and options plays.
One drawback: The portfolio is biased towards a handful of financial and energy stocks, while going light on technology and consumer-oriented companies. It has an expense ratio of 0.74%.
Pick 2: Xtrackers Harvest CSI 300 China A-Shares ETF (NYSE: ASHR) was the first U.S.-listed ETF to offer direct exposure to stocks listed in mainland Chinese markets (Shenzhen and Shanghai). ASHR tracks an index of the 300 biggest and most liquid stocks.
Just be aware that ASHR doesn’t invest in Chinese companies listed outside mainland markets, so popular stocks listed solely in Hong Kong won’t be in its portfolio. It has an expense ratio of 0.65%.
Pick 3: KraneShares Bosera MSCI China A ETF (NYSE: KBA) is benchmarked to the MSCI China A Index, which captures large- and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges (A-shares).
Over the coming years, MSCI will complete the incremental inclusion of China A-shares into their Global Standard Indexes, including the MSCI Emerging Markets Index, which may potentially benefit the securities KBA holds today. It has an expense ratio of 0.60%.
Pick 4: KraneShares CSI China Internet ETF (NYSE: KWEB) tracks the CSI China Overseas Internet Index, which tracks information technology stocks that are China’s answer to U.S. firms like Amazon.com, Inc. (Nasdaq: AMZN) and Facebook, Inc. (Nasdaq: FB). It follows a blended strategy, investing in both growth and value stocks.
KWEB’s portfolio is dominated by well-known large-cap stocks like Alibaba Group Holdings Ltd. (NYSE: BABA) and Tencent Holdings Ltd. (OTCPK: TCEHY), but also owns a sizable chunk of mid- and small-cap firms that many U.S. investors might not recognize.
One foible to keep in mind: KWEB only invests in overseas-listed shares of Chinese firms, primarily those listed in the U.S. and Hong Kong. This means it misses out on a slice of the mainland China market. It has an expense ratio of 0.76%.
Pick 5: Global X MSCI China Consumer Discretionary ETF (NYSE: CHIQ) tracks the Solactive China Consumer Index, which is designed to reflect China’s consumer sector. This includes large- and mid-cap companies that are either domiciled in China or have their main business operations there. It follows a blended strategy of growth and value.
The fund’s top three holdings are Alibaba, JD.com, Inc (Nasdaq: JD) and Meituan Dianping (OTCPK: MPNGF), all tech companies offering e-commerce platforms.
CHIQ offers targeted exposure to the Chinese economy, as the consumer sector is often under-represented in other China funds. It has an expense ratio of 0.65%.
Pick 6: Global X MSCI China Financials ETF (NYSE: CHIX) offers fine-tuned exposure to China’s financial sector, for those expecting strong performance from banks and other financial services companies. Investors bullish on financial stocks but hesitant to invest in U.S. equities might consider CHIX as well. It as an expense ratio of 0.65%.
Here’s a news flash …
Index providers and ETF issuers that track Chinese markets will have to trim some China state-owned holdings after the U.S. just restricted investments in companies backed by Beijing.
The actions are in response to President Trump’s executive order barring Americans from investing in Chinese companies that the U.S. Defense Department says supply — and otherwise support — China’s military, intelligence and security sectors.
Even with these geopolitical issues, I think China’s growth will continue due to its momentum as a rising world power. And I’ll be keeping close tabs on the situation for my Wealth Megatrends subscribers.
If you’d like to join them and receive more detailed, actionable updates on how to play China’s growth, click here.
All the best,
Sean
