China posts economic growth for 3Q2020

After much anticipation, China released their 3rd quarter GDP numbers. The country saw its economy expand by 4.9% YoY in 3Q2020, a steady and continued growth from the 3.2% seen in 2Q2020. While most other economies look on in envy (and while trying desperately to control the spread of the virus), China is steadily cruising ahead and enjoying a broad-based economic recovery that has gone beyond just investment-led stimulus.

The Central Bank’s Governor has reiterated that focus will be placed on generating demand through the domestic market. Boosting domestic demand will be prioritised as the country looks towards maintaining the economic growth momentum.


Strict measures yield results

The Chinese government first imposed a full lockdown on the City of Wuhan back in January. The lockdown left 11 million citizens being placed under quarantine, and highways in and out of the City blocked. While global economies had earlier criticised China for its strict measures, the ability for the country to bounce back has been admirable. The country lifted its lockdown measures after 60-days, and the pandemic is now under control. The ability to curb the spread of the virus now provides its citizens with the freedom to freely travel across the country.

The recent Golden Week holidays saw hundreds of millions of the locals moving around the country. The closure of international borders did not keep the locals from enjoying their holidays – with Wuhan, the city where the virus was first detected, reportedly welcomed 18.8 million visitors into its City during the 8-day holiday period.  

Amidst concerns over the sustainability of the travel and tourism sector, China’s Golden Week holiday raked in a total of USD69.5 billion in tourism revenue. Pre-pandemic spending patterns are starting to emerge, and retail sales are now picking up as more and more locals venture out of their homes, leading the economy to gradually shift back into normalcy.


Growth drivers

In its latest projection, IMF has forecasted a full year growth of 1.9% for China. Whilst this is slower than what it has been enjoying in previous years, it is a big feat given the current global environment that we are in. Amidst the slower growth, global economies are expected to see a contraction (-4.4%) this year as it continues to scramble to contain the virus.

After a prolonged period in lockdown, locals are now in a scenario termed “Spending Revenge”. Retail sales have risen to 3.3% over the quarter. Physical or online, it doesn’t matter anymore. The consumers are just looking for ways to spend. The return of pre-pandemic spending patterns has also given a new lease of life to the job market.

Over the 3rd quarter, the service sector grew 4.3%, recovering from the effects of the pandemic in the earlier quarters. Industrial production also expanded, with a 5.8% growth over the same period. Stronger growth drivers for the expansion in industrial production were seen coming out of the New China Economy, which is from the technology segment, and the production of new energy vehicles.


The New China Economy

The New China Economy is seen to be a strong beneficiary from the government’s focus towards boosting domestic demand. The term New Economy covers sectors that are tilted towards consumption, and services such as internet / e-commerce, healthcare, beauty & personal care, travel & tourism, financial services / insurance, and clean energy.  Basically, it’s a shift away from the conventional (or Old Economy) sectors such as manufacturing and industrials, as well as banking.

An index that has fast been gaining traction over its Old Economy peers is the S&P New China Sectors Ex A Share Index. The Index is tracked by the TradePlus S&P New China Tracker (NewChina ETF), and holds exposure into tech giants such as Alibaba, Tencent, JD.Com, as well as the famed hotpot chain Haidilao, and electric car maker Nio (Tesla Inc’s rival in China).  

The NewChina ETF, which was listed on Bursa’s main market in January 2019, provides investors:

  • Simplicity in investing - By gaining exposure into 78 New China Economy-related stocks through 1 single trade.
  • A cost efficient option - Through the NewChina ETF, investors can avoid paying foreign brokerage charges for exposure into stocks listed on the Hong Kong stock exchange, as well as the US listed ADRs
  • Convenience - To gain exposure into foreign markets through Bursa, using Ringgit


About the New China ETF

  • The 1st dual currency listed ETF in Malaysia.
  • Trades under the Bursa stock code: 0829EA (for MYR Currency), and 0829EB (for USD Currency).
  • The ETF closed at a NAV per unit of RM7.8967 (as at 20 Oct 2020).
  • How to trade? 
    • ETFs trade just like stocks.
    • So all you will need is a brokerage account.
    • Just call your broker, or get onto their online platform – and start trading.


Performance of the ETF vs. Other China Related Indices (Percentage Returns from 28 Jan 2019 - 30 Sep 2020)


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