In line with a more sustainable growth pace, China had recently guided a lower GDP range for 2019 (6.0% - 6.5%). Nevertheless, the consumption sector has continued to play a bigger role in the country’s economic growth as it looks to transition from an industrial-focused economy, to one that is consumption-driven. With measures continuously being put in place to drive the sector, we see China’s New Economy Sectors to be the key beneficiaries of the move.

 

China’s consumption sector continues to drive economic GDP

  • For the 6th straight year, the consumption sector was the largest contributor to the economy’s growth – contributing 76.2% of the 6.6% GDP recorded in 2018
  • Trend is expected to continue with supportive measures being put in place to boost consumption habits of the 1.4 billion domestic market

 

 

Measures in place to boost consumption

  • As a measure to increase urban and rural personal incomes, threshold for individual income tax were raised, with additional 6 special expense deductions created
  • Move is said to benefit 80 million tax payers.
  • In 2018:
    • Retail sales grew by 9.0% YoY
    • Per capita disposable personal income grew 6.5% in real terms

 

Key drivers pushes S&P New China Index ahead

  • Global financial markets continue to climb higher as fears of a US-China trade war eases
  • China related stocks gain favour after MSCI announces its plan to increase weightage into the domestic equity market
  • On a year-to-date basis, the S&P New China ex A Share Index – the index which focuses on the consumption sector, has recorded a respectable 13.4% gain (in MYR terms), and outpaced its regional peers

 

Tech talks hog headlines

Tencent Holdings has bounced back after a disappointing 2018

  • Despite the 40% rebound from its October 2018 low, stock price remains below its January 2018 high
  • Game approvals by regulator has boosted investors’ sentiment for the company, after the regulators’ earlier clamp down on game releases

JD.com sees increase in active customers

  • Accounts grew by 20% YoY in 4Q2018 to bring JD.Com’s total active customers to 305.3 million
  • Stock price continued to climb higher after the company announced that its 4Q18 quarterly revenue climbed 22% YoY – translating to an adjusted net income of USD109.1 million, going against analysts’ expectations of a USD19.4 billion loss

5G technology takes off

  • Reports of support for the 5G technology has put China at the forefront of the race, despite the resistance from the US
  • It’s advanced position against its rivals puts it at an advantage, and has seen stock prices of telco related companies moving higher
  • China Mobile unveiled its 5G chipset, and 5G devices at the 2018 World Mobile Congress (WMC) – the world’s largest showcase for the mobile industry. Its first commercial device is set to hit the streets in June this year
  • ZTE Corp whereas, showcased its 5G phone at the 2019 WMC – which are set to be released in China, and Europe this year

 

S&P New China Ex A-Share Index Top Performers & Laggards

Top Performers YTD Returns (%)
iQIYI Inc 70.5
ZTE Corp 62.2
Wuxi Biologics Cayman Inc 53.0
Ctrip.com International Ltd 50.8
New Oriental Education & Technology Group 44.2
Alibaba Health Information Technology Ltd 42.7
Momo Inc 38.0
TAL Education Group 30.2
JD.com Inc 29.2
Alibaba Group Holding Ltd 27.7
Laggards YTD Returns (%)
BeiGene Ltd -8.2
BYD Co Ltd -5.2
NetEase Inc -3.7
Huaneng Power International Inc -3.6
China Resources Power Holdings Co Ltd -2.8
China Mengniu Dairy Co Ltd 1.2
China Telecom Corp Ltd 1.8
Geely Automobile Holdings Ltd 2.3
Baidu Inc 3.2
Galaxy Entertainment Group Ltd 3.6

 

Performance of Tech Names within the Index

 

Gaining Access to the Index

Investors can gain access to the Index through the TradePlus S&P New China Tracker, an exchange-traded fund listed on the Main Market of Bursa Securities.

Name of ETF TradePlus S&P New China Tracker
Objective The Fund aims to provide investment results that closely correspond to the performance of the Benchmark
Benchmark S&P New China Sectors Ex A-Shares Index
Listed Market Main Market – Bursa Exchange
Trading Currencies Malaysian Ringgit US Dollar
Minimum Trading Units 100 100
Stock Code 0829EA 0829EB
Bloomberg Ticker CHNMYR MK CHNUSD MK

 


Data Source: Bloomberg as at 8 March 2019. Performance of indices are quoted in MYR terms, while other returns are quoted in local currency terms.

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