By Brandon Clay
Back in 2001, Goldman Sachs highlighted the growth potential of emerging markets in Brazil, Russia, India, and China, or BRIC. Goldman reasoned the combined BRIC economies could outpace the world’s richest economies by 2050. China is beating Goldman’s expectations on the road to 2050. In fact, the Chinese economy has become the financial story of the decade.
China’s emergence as a global economic power has been staggering. This year, it is expected that China outpaced Germany to take the title of the world’s leading exporter. Though exports dropped in the world’s most populous nation, the more expensive German exports suffered an even greater decline during the global economic slowdown. This allowed China to overtake its European rival. In terms of production, China is now the world’s second-largest economy, ahead of Japan. Only the US boasts a larger gross domestic product.
While most of the world is still in a slowdown, the Chinese domestic market has been growing. GDP for the first three quarters of 2009 grew at an annualized 7.7% clip. Because exports had slowed, much of that growth came on the domestic front. China now is the #1 country for mobile phone use as well as internet use. It is the 2nd largest automobile market and may be #1 soon. China spends more money on its military than any other country except the US.
There are several ways to buy into China’s growth. Country-specific funds and ETFs can be a good way to gain exposure to the economy with the world’s largest labor force. However, when Chinese exports suffer, like they did in 2009, this drags down performance of the entire fund. Just like in US markets, the better way to invest is to buy growing sectors and avoid lagging ones.
Until recently it was fairly difficult to buy specific sectors in China. You had to research and purchase individual stocks, with little diversification and higher transaction costs. Earlier this month, we highlighted Global X’s launch of new sector-focused China ETFs, including Global X China Consumer ETF (CHIQ). We think CHIQ may be a good way to play the China opportunity.
Global X China Consumer ETF is a virtual snapshot of China’s consumer market: Retailing 28.6%, Food 21.9%, Consumer Services 20.5%, Autos 12.0%, and Health Care 7.9%. Major company holdings include Dongfeng Motor Group, Tsingtao Brewery, Air China, Li Ning, Wumart Stores, and China Foods. It should be noted that CHIQ has a significant currency exposure (85.1%) in the Hong Kong Dollar (HKD).
As noted, CHIQ is a newly-launched fund that only began trading at the beginning of December. As such, it has considerably lower volume than broader China ETFs. Even so, CHIQ may still be the most cost-effective way to bet on the Chinese consumer. To buy into the consumer-based Chinese domestic economy, go with CHIQ.
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Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.