After the movement control order (“MCO”) was put in place on the 18th of March, many of us are now having to accustom ourselves to a new environment. As we enter the 4th week of the MCO, have you realised how reliant you have become on technology?   

It’s no longer deciding on which shopping complex you will be visiting to get what you need, but instead, which app you will be using. Conventional brick-and-mortar stores are seen shutting their doors for business, with many economies at a standstill as containment measures are put in place. The change of landscape has pushed digital technology to the forefront as online delivery apps emerge as the go-to option. This is a phenomenon that is taking place across the world as the spread of the Covid-19 pandemic worsens.  

While China was the first to take the hit after reporting infection cases in the city of Wuhan, the strict measures that the government took to minimise the spread had yielded positive results.  It also provided us with a glimpse into how China’s New Economy had helped it get through these more trying times. 

 

What is China's New Economy?

Though China had built its economic strength through its manufacturing sector, the government has been steadily transitioning its economic focus to consumption, and the service sectors. While segments within the New Economy include healthcare, clean energy, beauty and personal care, travel and tourism, insurance, education, and technology, it is the digital economy that has stolen the limelight in recent months.  

While countries outside of China are also digitising its retail sector, the e-commerce landscape in China is seen to be much more advanced. For one, Chinese on-line retailers are now moving towards livestreaming.  Alibaba’s dedicated livestreaming channel, Taobao Live, generated sales worth USD2.9 billion during its Singles’ Day sale in 2019. The sales amounted to 7.5% of the company’s total sales. 

Fun Facts about China’s e-commerce sector:

 

Thriving in trying times

Some of the world’s largest global digital platforms stem out of China. And with the large population that the country has, these platforms have put in place an efficient and effective supply chain to cater to both the larger orders, and geographical distance. Usage of these platforms are expected to only rise further as more users accustom themselves to technology. 

  1. JD.com is a major e-commerce player in the China market, and has seen its business grow on the back of a 1 to 2-day delivery claim. The company saw a 215% year-on-year rise in its grocery sales (24 January – 2 February), with nearly 15,000 tons of fresh products being sold. Though the company had prioritised the logistic needs of medical supplies, it also put in place measures to ensure that its customers across 300 cities were able to have access to fresh groceries.  

  2. Meituan Dianping is China’s top food delivery service provider, and has the backing of internet giant, Tencent Holdings Ltd. Though the company had taken a hit after local restaurants were mandated to close, the company is expected to benefit from the 400 million transaction users, and 5.8 million active merchants that it had onboarded as the situation in China gradually improves. 

  3. Tencent Games, the online gaming division of Tencent Holdings, has also benefited from the controlled measures in China. The company hosts China’s largest online gaming community, and has the world’s largest digital entertainment platform. One of its more popular titles, Honor of Kings, saw a jump in number of active users, rising 7% to 2million users on the iOS device. However, with the quarantine orders in place, games like mahjong and poker have also topped of the list. The number of active users in mahjong rose 109%, while its poker title saw a 20% increase in users in the course of 2 months.

 

Performance so far

While financial markets have been hit with volatility given the uncertain times that we are faced with, stock price for these tech giants have been relatively resilient. JD.com, and Tencent have both provided positive returns on a YTD basis, while the performance of Meituan Dianping was dampened by the shutting of restaurants earlier on.  

China has proven that it holds an advantage over the other countries when it comes to reaching out to its citizens. And with expansion plans already in place to make way into global markets through collaborative efforts with the local experts, these China tech giants are likely to see stronger growth going forward. 

 

Tracking the New China Economy

Investors who would like to gain access to China’s New Economy can consider the TradePlus S&P New China Tracker exchange-traded fund.  The ETF, which is listed on Bursa’s main market under the stock code of 0829EA, ended 6 April 2020 at a NAV of RM5.87 per share. 

The ETF is benchmarked against the S&P New China Sectors Ex A Share Index, which tracks the performance of these companies, along with other sectors that are focused on China’s New Economy.  Shying away from conventional sectors such as banking, and manufacturing, as well as companies that are listed on the more volatile A-share market, the Index gives investors access to more than 70 stocks that are listed on both Hong Kong, and the US stock exchange. 

Read more about the TradePlus S&P New China Tracker here

 

Learn more about TradePlus ETFs

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