With China emerging from the effects of lengthy coronavirus lockdowns, stocks in the world’s second-largest economy are rebounding this year. Not surprisingly, some consumer-oriented names are getting on the act.
That bodes well for exchange traded funds such as the KraneShares CICC China Consumer Leaders Index ETF (KBUY). KBUY follows the CICC China Consumer Leaders Index and provides investors with exposure to a variety of consumer-oriented industries on both the cyclical and staples sides of the ledger.
Predictably, China’s economic reopening is viewed by global investors as a boon for consumer discretionary equities. That thesis could be further supported if China does an adequate job of damping COVID-19 cases and ensuring its citizens embrace vaccines.
“From what we can see that most provinces are indicating that infections are on the wane. And we can also see concretely that domestic travel during Chinese New Year has rebounded strongly, which is positive for services and consumption,” noted Zhikai Chen, head of emerging market equities at BNP Paribas. “And on the property side, we can also see that they have largely effectively unwound the prior three red lines on leverage and importantly are directly backstopping some of the largest developers with financing and liquidity. This has also stopped the further financial situation of the largest Chinese developers, but it remains to be seen whether property sales can recover after the steep declines that we saw in 2022.”
Data from recent Chinese Lunar New Year celebrations indicate that tourism in the country is picking up, but there’s ample room to grow before returning to pre-pandemic levels. If that rebound continues and matches or exceeds 2019 levels, some KBUY components could benefit.
“I do think that you take some time for Chinese tourism to resume to pre-pandemic levels. But a U-turn and firm U-turn in zero-Covid policy has basically brought forward this resumption of outbound tourism forward by probably 6 to 9 months,” added Chen.
Another element in the KBUY equation is the possibility of monetary policy growing more accommodating in the U.S. while China makes moves to support what is still a fragile economy.
“So from the really significant base, we are not sure that there will be another, shall we say, tailwind kicker from the reopening that will be as strong. I think all eyes right now is on the Chinese consumer to basically come out and basically spend hopefully like what we saw in the other developed economies and other emerging economies when they exited zero-Covid, for example,” concluded Chen.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.