Markets

5 Reasons to Bet on China ETFs

China’s stock markets have been in good shape in recent weeks. The country has been a guide in understanding the coronavirus progression and prevention model as the pandemic reportedly first broke out there.

Against this backdrop, several China ETFs have been in a winning position in recent weeks. We can highlight a few more reasons that could make China investing a winning bet in the near term. Let’s delve a little deeper.

China’s Q2 GDP Growth Bolsters Hope

The Chinese economy grew 3.2% year on year in the second quarter of 2020, rebounding from a record 6.8% contraction in the previous three-month period and beating market consensus of 2.5% expansion. The country became the first major economy to report growth following the coronavirus pandemic-led lockdowns. Reopening of economies led to the growth in the economy.

However, consumer spending remains at a weak spot and has accentuated the need for more support from Beijing to accelerate economic recovery. Considering the first half of the year, the economy contracted 1.6% year over year. Given the severity of the pandemic, the extent of decline does not come across as too grave. Growth in industrial output and fixed-asset investment are expected to reach the pre-virus pace in the second half of the year, according to a recent Bloomberg survey.

PBOC’s Targeted Policy Easing

In its latest move, the PBOC slashed the cost of a lending program to lower borrowing costs for small businesses, hinting at continuation of the targeted easing approach. The State Council also pledged to deploy some of the proceeds from local government debt into buying convertible bonds sold by small banks, in order to help them replenish capital and lend more to small businesses.

Otherwise, China has been implementing small measures of monetary stimulus unlike many other global superpowers. Monetary policy is returning to the “pre-Covid approach” of easing, which features targeted stimulus, said Liu Peiqian, China economist at Natwest Markets in Singapore, as quoted on Bloomberg.

Monetary policy is still easy on average, but there’s been a sense of “partial tightening” compared with the stance in February and March, Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong, quoted on Bloomberg. It lessens the downside impact of the mammoth policy easing once the virus scare subsides.

Investing in Chinese Technology Looks Rewarding

The coronavirus-led social distancing trend has given a boost to technology all over the world. People indulged in the work-learn-entertainment from home. As a result, China’s Internet and tech ETFs that house stocks like Tencent, Alibaba, JD.Com, Baidu, NetEase have been in sweet spot.

Notably, QuantumCTek Co., which develops information security products, closed 924% above its 36.18 yuan (S$7.20) issue price on China’s Star board. Moreover, shares of chipmaker SMIC jumped 246% in the first day of trading. All these highlight the strength of the China’s tech companies and euphoria around that country’s tech IPOs.

Chinese Biotech Companies’ Efforts to Bring Out COVID-19 Vaccine

Chinese biotech and pharma companies are benefiting from the push for a coronavirus vaccine. Private Chinese company Sinovac Biotech is testing an inactivated vaccine called CoronaVac. On Jun 13, the company announced that “Phase I/II trials on 743 volunteers found no severe adverse effects and produced an immune response.”  Sinovac Biotech Ltd. has also inked a deal to do final tests in Brazil.

Apart from Sinovac, there are a number of companies involved in the vaccine race. CanSino Biological has two candidates in phase 1 and phase 2. China National Biotec Group (CNBG), which is a unit of the state-owned China National Pharmaceutical Group (Sinopharm), has two COVID-19 vaccine candidates in human trials and plans a large-scale Phase 3 human testing in the United Arab Emirates.

Growing Presence in the Clean Energy Space

China’s target is to shell out $360 billion on renewable energy by 2020 and have renewable energy account for 35% of its electricity consumption by 2030, per Kraneshares. The country has raised its renewable energy generation target for this year to 28.2% of the total, with 10.8% coming from non-hydropower sources. This marks an increment of a modest 0.7 percentage points from 2019.

Winning ETFs in the Past Week

China ETFs like KraneShares MSCI All China Health Care Index ETF KURE, Global X MSCI Consumer Staples ETF CHIS, VanEck Vectors ChinaAMC SME-ChiNext ETF CNXT and Xtrackers Harvest CSI 500 China-A Shares Small Cap Fund ASHS) have gained in the range of 1.4% to 6.1% past week.

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VanEck Vectors ChinaAMC SMEChiNext ETF (CNXT): ETF Research Reports

Xtrackers Harvest CSI 500 China AShares Small Cap ETF (ASHS): ETF Research Reports

KraneShares MSCI All China Health Care Index ETF (KURE): ETF Research Reports

Global X MSCI China Consumer Staples ETF (CHIS): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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