The current COVID-19 pandemic that has halted world economic activity began back in December of 2019 in the country of China. For weeks the world watched as the Chinese government dealt with the viral outbreak. Some called the Chinese government's decision to 'lock-down' the city of Wuhan in the Hubei province and other major cities that were experiencing growing COVID-19 case rates as 'draconian.'
The spread of the virus slowed in China due to the 'extreme' measures they took, but pandora's box had been opened, and the virus had spread throughout the world. At this time, most of China is back to normal in terms of businesses being open, workers returning to factories, and most of the country no longer being in a lock-down situation. However, the lock-downs in China started on January 23rd, and Wuhan, for example, is still under strict movement rules.
In comparison, most European countries, the U.S., and other developed nations just went into 'restricted movement orders' in the last week of March. So, in those terms, China is two months ahead of the rest of the world in terms of fighting this disease and slowing economic activity as a form of fighting the spread of the disease. That also means they are likely two months ahead of the world in terms of when it comes to 'getting back to normal' or getting the economy back up and running.
So, since China is 'ahead' of everyone else, we could induce that some Chinese companies, mainly those who serve the Chinese people, will start to perform better financially, sooner than other companies around the world. This leads to the potential investment opportunity that is currently presenting itself in China, while the rest of the world is in a holding pattern waiting for the second shoe to fall before, they put more money to work in the markets.
So, let's take a look at a few ETFs that you can invest in today, which will give you exposure to the Chinese economy, and potentially a head start on other markets around the world.
The first one you should consider is the iShares China Large-Cap ETF (FXI). FXI invests in the 50 largest and most liquid Chinese stocks that are traded on the Hong Kong Stock Exchange. It is one of, if not the largest and most popular Chinese ETF today. It has an expense ratio of 0.74%, currently $4.02 billion in assets under management, a yield of 3.23%, a price to earnings ratio of just 8.13, and a weighted average market cap of $146.39 billion.
A slightly broader option would be the SPDR S&P China ETF (GXC), which tracks a broad, cap-weighted index of investable Chinese shares. The fund currently has 727 holdings, with the top 10 consisting of 43% of the fund's assets. GXC has an expense ratio of 0.59%, a yield of 1.81%, a price to earnings ratio of 13.87, and a weighted average market cap of $117.42 billion.
A slightly more focused and what has been a less risky investment is the Global X MSCI China Consumer Staples ETF (CHIS). This fund tracks a cap-weighted index of Chinese large and midcap companies in the consumer staples sector. The fund does not try to pick winners. It simply invests in all the companies that fall into this sector. Year-to-date, the fund is down 4.63%, while FXI is off by 14.28%, and GXC is down 11.35%. CHIS has held up better than others due to what you are investing in, essential products that even those in 'stay at home order' situations still need to consume. The fund has an expense ratio of 0.67%, a yield of 3.59%, a price to earnings ratio of 27.65, and a weighted average market cap of just $33.19 billion. Currently, CHIS has just 48 positions, with the top ten representing 62.55% of the fund.
Another option in the consumer-focused realm is the Global X MSCI China Consumer Discretionary ETF (CHIQ). This fund tracks a cap-weighted index of Chinese large and midcap consumer discretionary companies. Year-to-date, the fund is off 13.62%, but it could see a big jump if the Chinese consumer who just spent weeks in 'lock-down' heads out and starts spending. The fund currently has a negative price to earnings ratio, a weighted average market cap of $69.3 billion, an expense ratio of 0.65%, and a yield of 1.2%. It has 68 holdings, and 54% of the fund is in the top ten positions.
Finally, another sector, and therefore ETF to consider are the Chinese Internet companies. The thinking behind buying shares of the KraneShares CSI China Internet ETF (KWEB) is that during the 'lock-down' periods in China, consumers would have been buying more merchandise online, watching more streaming services online, doing video conferences, and just, in general, using the internet more. This ETF simply invests in Chinese Internet companies. The expense ratio is 0.76%; it has a weighted average market cap of $117.86 billion, price to earnings ratio of 89.76, and a yield of just 0.09%. It has 46 positions, with the top ten representing 62.35% of the fund.
So, you have five options if you think China is truly two months ahead of the rest of the world in terms of recovering from the COVID-19 pandemic and getting its economic activity back up and running.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: As of this writing, Matt Thalman did not hold a position in any investment mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
