This is not independent financial advice, rather I have put together a number of portfolio ideas formed on ETFs for different risk levels of investors. By, all means feel free to use these at your own risk. If you need independent financial advice, please email me at info@investmentsforexpats.com. The portfolios are based on China it’s potential growth because nothing is certain!
This article will aim to give investors an overview of China and certain sectors to give an idea of the growth potential and the hypothesis of why I have personally opted for these ETFs and portfolios and our methodology behind the portfolio based on certain research and facts.
China Growth Portfolio Breakdown
- This aims to take advantage of growth markets in China at the forefront of innovation and growing consumer supply, technology innovation, and healthcare sectors.
- Risk level – 9 out of 10.
- Type of Investor- High-risk tolerance with a long-term view that can take a high level of volatility. If you choose to invest, this capital must be capital that you don’t rely upon.
- Time frame – 5 years plus, ideally 10 years or more.
- How to use this – As part of a China-based portfolio as an alternative over an overall portfolio.
We have aimed to screen a number of ETFs that are large and well-established ETF companies with a minium of $200 Million in AUM invested and liquid.
| Fund Name | Weight | Cost | Link |
| iShares MSCI China ETF | 25% | 0.57% | https://www.ishares.com/us/products/239619/ishares-msci-china-etf |
| KraneShares CSI China Internet ETF | 15% | 0.69% | https://kraneshares.com/kweb/ |
| Global X MSCI China Consumer Discretionary ETF | 21% | 0.65% | https://www.globalxetfs.com/funds/chiq/ |
| Invesco China Technology ETF | 12% | 0.7% | https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=CQQQ |
| MSCI China Heathcare ETF | 12% | 0.6% | https://www.globalxetfs.com/funds/chih/ |
| Ishares MSCI China A | 15% | 0.6% | https://www.ishares.com/us/products/273318/ishares-msci-china-a-etf |
Consumer Growth in China
Over 40 years China has transferred its economy to become the second and is predicted to come first in the next 10 years by some forecasts as of 2022, the biggest economy in the world by GDP. Although, this has largely been due to a manufacturing and export-based economy.
China, however, is no longer a cheap labour location and with added tension from the trade war, we have seen manufacturing move to different regions due to political and supply chain issues. China aims to shift in the next chapter of its growth being automation, technology, and consumer discretionary. These sectors are aided by national strategic policies.
China has undergone a transformation to a consumer base economy but is still behind the OECD countries’ average on consumer spending. Giving reasoning to believe there is growth in the sector.
One of President Xi’s plans that was presented at the November 2022 CCP party conference was to aim to reduce the income difference in wealth and aid common prosperity.
- https://www.cnbc.com/2021/08/18/chinas-xi-emphasizes-common-prosperity-at-finance-economy-meeting.html
- https://www.ceicdata.com/en/indicator/china/monthly-earnings
With an average income around half of what is in most developed countries and an annual growth predicted at 6% over the next forthcoming years (source Focus Economics). Chinese consumer spending is likely to be getting closer to the average OECD countries’ consumption of 73% (Source world bank) which presently stands at just over 50%.
If we look back at the history of wages in China. Inflation-adjusted income in China from 2019 over the previous 10 years grow 7.9% compared to 1.9% in the US. In 2022, the middle class in China is larger than the population of the U.S.
https://tradingeconomics.com/china/wages
Consumers in China have also been fast to adapt to new technology, being at the forefront of digital payments (see figure below).
In 2022, China had 1,051 million people in 2022 using the internet, of whom 1,023 million shopping online. This is more than the E.U. and U.S combined (Sources Stastica)
https://www.statista.com/statistics/1131340/china-mobile-online-shopping-population/
Meanwhile, China mobile payments are no contest compared to the U.S. The U.S. spends 283B and China spends 47 trillion. If you see the growth from 2011 to 2021, the growth is quite large.
Source: Wall Street Journal
This gives rise to the prediction that China’s consumption could be one of the world’s highest over the next decade. Morgan Stanley has a forecast that China’s consumption could double by 2030 to 12.7% million.
This is why I have weighted the portfolio in ETFs such as the China Consumer Discretionary ETF and the core MSCI China which are prime to be the beneficiaries of this growth.
Ishares MSCI top holding 2022 Nov, has 4 consumer discretionary holdings and digital payments methods (Tencent) in the top 10 holdings
MSCI China Consumer ETF
While many of the ETF’s large caps that make up most of the weighting are dual-listed.
China’s only ETF with many of the large-cap holdings within China is CNYA and this is based towards China only listed companies that are listed on the Shanghai or Shenzhen exchanges. This is why I have included it in our portfolio. Making use of internal consumer supply which includes companies such as Kweichow Moutai with a market cap of $24.1 Billion (November 2022).
CNYA top 10 holdings Nov 2022
CNYA has been hit hard in 2022 and is currently down 27.03% YTD (Nov 2022), but with strong domestic and economic growth returns in 2023/2024, it is deemed to have the potential to grow over the coming years.
Chinese Tech
With two of the ETFs in Chinese tech Kraneshare and Inevsco technology making up over a quarter of the portfolio respectively of the ETF for the hypothesis that alluded to above about the growth in China, the changing economic make up, a leading digital payment usage and the world largess internet usage and raising middle class.
CQQQ invests primarily in Chinese companies within the Information Technology seen by the top 10 holding in 2022 Nov
While both holdings have big names such, both also have holdings in Sunny Optical, a major supplier of lenses in Apple and Huawei.
Chinese Healthcare
This sector is one that I see has potential upside due to an ageing population and the transformation in health care technology over the next 10 years. China is aiming to be a top biotechnology sector and has put a proportion of its portfolio into Chinese healthcare in the portfolio.
MSCI China health care ETF Nov 2022
Although, without doubt, China faces political and regulatory headwinds that were made evident in 2021 with both the crackdown on private education and large Chinese tech companies.
While more recently China has had economic problems with a large debt. A property sector that is lacked regulatory oversight and has been used as a speculative investment for Chinese investors. The macroeconomic environment is challenging and is still being made difficult by lockdowns in China from COVID-19 and high youth unemployment, de-population and ageing demographics.
However, if history is anything to go by and what transformation China has overcome in the last 40 years, it would be believed by many that China can overcome these challenges and change its economy to a more innovation-driven one. Therefore holding a diversified portfolio in broad-based China ETFs and specific Chinese sectors will have the potential to grow long-term.
Disclaimers
This is not personal financial advice, if you need personal financial advice please speak to a qualified and competent advisor.
- Notes Holding may change in the ETFs
- These predictions are my own and not garmented.
- Investment can go down as well as up
Conclusion
Firstly, if you have any questions on the above, please email me at info@investmentsforexpats.com.
For China, I personally think there are a few key areas for growth and you could argue the same for in more developed western markets, however, the rate which these sectors are currently developing gives me reassurance that they will do so over the long term.
As always, nothing is guaranteed and if you choose to invest, it is your decision, these are portfolios I have created for my own reasons.
A downside I can see is the political part of China and how that can affect businesses and this can be why many won’t invest in China or a Chinese company.
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