Beijing, China – The Global X MSCI China Consumer Discretionary ETF (CHIQ) is an equity portfolio focusing on the consumer discretionary sector, featuring high-quality and high-growth holdings with earnings growth as the main return driver. The current market condition potentially suggests a bottoming phase for CHIQ, with strong earnings growth potential for its holdings. Despite short-term economic challenges, optimistic market expectations provide a balanced outlook, leading to a hold rating.
The Third Plenum in China recently set the tone for long-term policy agenda amid continued weak market sentiment, driven by downward pressure on housing and disappointing GDP and retail sales performances. The year-to-date price return for CHIQ stands at -4.43%, with a consumer-cyclical weight of 94%. Performance for CHIQ aligns with major Chinese ETFs over a 1-year period, although sentiment is more negative for consumer discretionary stocks in China compared to other sectors.
The top 10 holdings for CHIQ demonstrate robust quality and growth prospects, with a weighted P/E ratio of 23 and a PEG ratio of 0.7. Companies like Meituan, PDD, BYD, Li Auto, JD, Alibaba, and Yum China are key drivers of earnings growth for CHIQ. Valuations remain attractive considering the growth potential of these stocks.
On a broader scale, the Chinese equities market faces challenges such as declining 10-year bond yields, outflows from domestic markets, and prolonged disappointment among Chinese consumers. Policy clarity remains a key concern, with the government focusing on deleveraging and shifting towards a model of high-quality growth less reliant on the property market. Geopolitical tensions, uncertainty in macro policies, and liquidity risks pose downside risks.
However, there are reasons for optimism, including the current low valuation of the Chinese stock market, the resilience of CHIQ’s holdings, and limited impact from tariffs due to indirect exposure. The market’s pessimistic sentiment presents opportunities, with earnings growth expected to continue driving performance. Despite unresolved challenges, there are reasons to be hopeful about long-term growth potentials and policy outcomes in China.
In conclusion, CHIQ offers a balanced outlook with a hold rating for now, awaiting further policy outcomes and market developments in the coming months for potential revision. Investors should be aware of the risks associated with non-U.S. exchange-traded securities.