It hasn't been an easy for global financial markets in recent months as lockdown measures push economies to a halt. After emerging from its 11-week lockdown, China had the head start of restarting its economy, and is said to be seeing its manufacturing sector back at 80% capacity. But with containment measures imposed outside of China, the global supply chain remains affected, leaving the domestic market to take the lead on pulling up growth.
Leader of the Pack
- After being the 1st to put in place lockdown measures due to the pandemic crisis, China was also the first to reopen its doors for business after stringent measures allowed the country to keep infection levels under control.
- But the head start that it has received had not provided it with a smooth run to the finish line.
- While the manufacturing sector has gradually been moving back on track, and operating at a capacity of 80% and above, it still faces the challenge of a supply chain disruption as other economies are stuck in a lockdown and unable to receive orders.
- As the government switches its focus away from achieving growth targets, and instead to stabilise the economy through job creation, domestic consumption is a sector that is slowly cementing its status as a growth contributor.
Consumption Takes Over
- While threats of a trade war between the US and China continue to linger, the domestic consumption sector has been steadily holding fort.
- The move bodes well with the government’s focus to shift its economic reliance from being industrial centric, to one that is more consumption and service orientated.
- While e-commerce has always been big in China, its dominance and its ability to meet the needs of the citizens have become more apparent during these more challenging times.
- Its sturdy supply chain to meet the higher user base, as well as the vast geographical reach has provided the locals with somewhere to turn to for the daily needs .
- A single platform holds hundreds of millions of active users, and the early adoption of e-wallets, and e-commerce for the locals had only made it easier for them to adapt during times in containment.
- As an example, JD.Com had more than 500 million active users in 2019, while giant Alibaba had more than 700 million – a number we can only assume had grown further when many were kept at home during the lockdown.
- These same e-commerce giants had also stepped up to assist with the disbursement of medical needs to the locals when the time called for it. (Read more on this from our earlier article: How China’s New Economy Has Kept Its Economic Wheels Turning)
- Though the e-commerce segment is one that has remained in the spotlight, the consumption sector so much wider than this. It includes the education sector, insurance, travel, health and beauty, as well as green energy, and these segments have not fared too poorly themselves.
- Did you know China’s online food delivery market generates approximately USD45 billion annually – a figure that is double that of the US?
- 15,000 tons of fresh produce was delivered during the 10-day Lunar New Year holidays, when the country was in lockdown.
- Approximately 400,000 meal delivery orders were made daily on takeout platforms of Meituan Dianping, and Eleme.
- Meituan Dianping dominates the delivery segment, and holds 66% of market share.
- Meituan Dianping added 336,000 new drivers in the 1st 2 months of 2020 as the pandemic dampens the job market.
China, China, and China
- A market as large as China provides for a vast range of choices for one who is looking to participate / gain access.
- But it should be noted, that the broader economy is still relatively industrial-centric as it continues to transition.
- This means that the regular indices that you see would have heavy weightings into manufacturing companies, as well as conventional banks.
- This is different for the S&P New China Sectors ex A Share Index, an index that focuses solely on the consumption-centric sectors.
- One would probably think “China, is China, is China”. Well…not really, and this is obvious is the performance difference as seen in the table below.
- The consumption focused S&P New China Sectors Ex A Share Index has outperformed its peers on a YTD frame, with a 4.7% gain – vastly ahead of the rest.
- Its performance contributed to more than a 6% outperformance against the domestic focused CSI300 Index, and more than a 7% outperformance against the broader Shanghai Composite.
- With tech names such as Alibaba, JD.Com, Tencent, Baidu, Meituan DianPing, and Pindoudou Inc, to name a few, inside its portfolio, the Index had managed to remain resilient over the course of the year against the more conventional names which have suffered as businesses standstill during the lockdown.
A Domestic Reliant Index, Yet Diversified
- Though focused on the consumption, and service-oriented sectors, there are still diversifications within the portfolio.
- The Index takes into account stocks that are listed on both the US, and HK-listed exchange.
- Below is the breakdown on its top weighted names as at 31 May 2020
How to Gain Effective Exposure, Efficiently
- TradePlus S&P New China Tracker tracks the S&P New China Sectors ex A Share Index, and is able to provide investors direct access to the underlying of the Index.
- As the 1st and only dual currency listed ETF on the Malaysian stock exchange, the ETF is tradeable on the Bursa main market in Ringgit Malaysia via the stock code 0829EA, or in US Dollars via the stock code 0829EB.
- The ability to gain access via an ETF means an investor is able to avoid the hassle of FOREX when trading on the US stock exchange, and the Hong Kong stock exchange.
- It is tradeable anytime Bursa is open for trading, so transactions can be carried out during the local time zone, thus eliminating the need to stay awake in the middle of the night to trade.
- At a NAV price of MYR 6.3207 per unit as at the end of May, investors can easily gain access to more expensive stocks that are included into the portfolio, and obtaining a diversification that may not be necessarily obtained through smaller investments amounts.
- The ETF has seen a steady rise in performance since the start of the year, staying resilient in more challenging times, and may be an avenue for consideration for those contemplating exposure to capitalise on China’s longer-term growth prospects.
- The ETF's YTD NAV movement is as below (Souce: Affin Hwang Asset Management as at 31 May 2020).
Learn more about TradePlus ETFs
Disclaimer: This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM. The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions. As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product. Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers. Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities. Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.
Warning Statement: A copy of the Prospectus / Supplemental Prospectus for the TradePlus S&P New China Tracker can be obtained at Affin Hwang Asset Management's (“Affin Hwang AM”) website at www.tradeplus.com.my. Investors are advised to read and understand the contents of the Prospectus dated 15 January 2019 and Supplemental Prospectus dated 2 July 2019 for TradePlus S&P New China Tracker before investing. There are fees and charges involved when investing in the funds stated herein. Investors are advised to consider and compare the fees and charges as well of the risks carefully before investing. Investors should make their own assessment of the risks involved in investing and should seek professional advice, where necessary. The price of units and distribution payable, if any, may go down as well as up and past performance of the fund should not be taken as indicative of its future performance. The Securities Commission Malaysia has not reviewed this material and takes no responsibilities for the contents of this material and expressly disclaims all liability, however arising from this material.
Licensing Disclosure Statement & Conditions: The "S&P New China Ex A-Shares Index" is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and has been licensed for use by Affin Hwang Asset Management Bhd. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Affin Hwang Asset Management Bhd. TradePlus S&P New China Tracker is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P New China Ex A-Shares Index.