by Eric Dutram
New York-based Global X Advisors, the issuer behind the first U.S.-listed ETFs offering exposure to Colombia and the Nordic region, announced the launch of two new funds focusing on China on Tuesday. The Global X China Industrials ETF (CHII) and China Consumer ETF (CHIQ) are the first funds to offer sector-specific exposure within the China market. CHIQ will seek to replicate the performance of the S-BOX China Consumer Index, a benchmark that measures the performance of the consumer sector in China. As of October 30, the largest companies in the index included food and beverage companies Tingyi and Want Want China, automobile company Dongfeng Motor Group, department store firm Parkson Retail Group, and sports apparel company Li Ning.
CHII will track the S-BOX China Industrials Index, a benchmark that includes infrastructure groups (China Communications Construction and China Railway Group), diversified industrial manufacturers (BYD Company), and building materials firms (China National Building Material Group).
Both new funds will charge an expense ratio of 0.65%, making them very competitive from a cost perspective with existing China ETFs. By comparison, the iShares FTSE/Xinhua China 25 Index Fund (FXI), by far the largest China-focused ETF available to U.S. investors, charges 0.74%.
As China has become an increasingly large and important component of the global economy, ETF options targeting the Middle Kingdom have gradually expanded, a trend continued by the new Global X funds. While most international ETFs focus primarily on mega-cap stocks, investors are able to access all sizes of companies within China through the Small Cap China ETF (HAO) and All-Cap China ETF (YAO) from Claymore. Now Global X has made sector-specific investing in China possible, a space that has significant room for growth. Global X is planning to expand its line of China sector funds with a China Energy ETF (NYSEARCA:CHIE), China Financials ETF (NYSEARCA:CHIX), China Materials ETF (NYSEARCA:CHIM), and China Technology ETF (CHIN) at some point in the future.
China Of Today…And Tomorrow
Global X had filed for approval on several sector-specific funds (including the four not-yet-available ETFs listed above). The decision to lead with the industrials and consumer funds seems like a good one, offering exposure to two engines of global growth: one that has powered the country in the past and one that looks to be a major player going forward. “China is an incredibly efficient manufacturing hub for the world, as well as the main source of growth in global consumer demand,” said Bruno del Ama, CEO of Global X Management. “The China Industrials ETF and China Consumer ETF provide efficient and diversified access to these China manufacturing and consumption themes.”
The industrial sector of China has expanded rapidly in recent decades, propelling the Chinese economy to become one of the world’s largest. And the government continues to actively encourage growth in this sector, with an $850 billion stimulus package currently focused on construction, railways, subways, and airports. While China’s largest cities have become world-class financial and business centers that perhaps resemble developed markets, there exists a huge cap between the major metropolises and relatively undeveloped rural areas more characteristic of emerging markets. With huge needs for infrastructure development still, the industrial sector in China may see significant growth in years ahead. According to economic forecasting firm IHS Global Insight, China will overtake the U.S. as the world’s largest manufacturer by 2015.
The consumer sector in China is perhaps much less developed, but holds tremendous promise for the future. Along with the ongoing urbanization of the Chinese people comes an increase in disposable income and quality of living. As China’s citizens abandon their agriculture employment in favor of higher-paying jobs in big cities, the country’s middle class seems likely to explode, creating demand for all types of consumer products that had previously been exported. Consumer spending accounts for only about 35% of China’s GDP, half the level of the U.S. While there are a number of ways to present the tremendous potential of the consumer sector in China, perhaps the statistics on car ownership are most compelling. Currently in China, there are approximately 10 motor vehicles per 1,000 people, compared to 765 in the U.S.
See the Global X press release here [PDF]
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Author's Disclosure: No positions at time of writing.