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Another Consumer Discretionary ETF To Consider

ETF Professor

With the seemingly unabated ascent of Amazon.com Inc. (NASDAQ:AMZN), U.S.-focused consumer discretionary exchange traded funds are getting plenty of attention and rightfully, but there are some other ideas within the sector worth considering.

What Happened

While it has been volatile relative to its U.S. rivals, the Global X MSCI China Consumer Discretionary ETF (NYSE: CHIQ) is up 24.3% year to date, performing inline with the Consumer Discretionary Select Sector SPDR (NYSE:XLY). The $150.25 million CHIQ tracks the MSCI China Consumer Discretionary 10/50 Index.

China's effort to stir domestic consumption, reducing the giant economy's dependence on exports, could increase the allure of CHIQ for long-term investors.

“Among the most powerful are those areas tied to the rising impact of China’s consumers, who have experienced years of high wage growth, migration into cities, and an expansion of internet connectivity,” according to Global X research. “The government has also made consumption a priority as the economy transitions away from export-led industries.”

Why It's Important

CHIQ is home to plenty of U.S.-listed stocks, including familiar fare such as Alibaba (NYSE:BABA), JD.com Inc. (NASDAQ:JD) and Ctrip.com (NASDAQ:CTRP). China's middle class is widely as a major catalyst for the country's consumer discretionary sector and rightfully so.

“China’s middle class, which is larger than the entire population of the United States, is spending time and money on goods and services, spanning travel and leisure, e-commerce, social media, gaming, and health and wellness,” said Global X.

By market value, consumer discretionary in China is worth just over $1 trillion, less than half the U.S. value on that sector. However, data indicate Chinese consumer cyclical stocks are less expensive than their American peers.

What's Next

Expect e-commerce and internet retail names to be big drivers of China's consumer cyclical going forward.

“As the world’s leading e-commerce market, China accounts for more than 40% of the world’s e-commerce transactions, up from just 1% from a decade ago,” said Global X. “With rising highspeed internet coverage and broad adoption of mobile payments, e-commerce platforms in China are growing fastest in the country’s smaller Tier 3 and 4 cities, where access to online stores provides greater convenience and wider selection to customers.”

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