China thematic exchange-traded funds offer growth potential for savvy investors

The country’s economic growth in 2020 has exceeded market expectations, indicating sustained and strong recovery

Commitment to sustainable technology and development is a key focus of China’s government. PHOTO: GETTY IMAGES
Commitment to sustainable technology and development is a key focus of China’s government. PHOTO: GETTY IMAGES

Despite the Covid-19 pandemic, China’s economy has shown resilience and growth potential, with an increasing emphasis on clean energy infrastructure. This, in turn, provides myriad opportunities for investing in thematic funds that leverage the mainland’s vibrant green technology sector and robust domestic consumption.

China is the only major country in the world that is expected to record positive growth this year. Its gross domestic product (GDP) is projected to grow by 1.8 per cent in 2020 by the Organisation for Economic Co-operation and Development (OECD).1

One of the key factors that drives its economic recovery is that it is one of the very few countries that have managed to keep the spread of the virus under control within months.

Recent data on China’s growth has exceeded market expectations, indicating sustained and strong recovery. For instance, China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) increased from 53.6 in October to 54.9 in November, marking the sharpest improvement since November 2010.2

China’s commitment to sustainability

Alongside China’s economic recovery is its commitment to sustainable development, which will contribute to a more resilient future.

Chinese President Xi Jinping announced in September 2020 that China pledges to be carbon neutral before 2060. To meet this goal, it will have to invest more than $5 trillion3 to expand its production of clean energy products.

China is the world’s leader in offshore wind turbine installations and a major supplier of solar photovoltaics used in the making of solar panels. Chinese companies control at least 60 per cent of the global capacity in the solar supply chain4, including polysilicon, cells and panels. With solar power already cheaper than coal power in many countries, China stands to benefit as global demand rises.

In terms of hydropower, China’s dams generated more electricity in 2017 than the total supply of every other country in the world besides the US and India.5

China is already a global leader in renewable energy technology, such as wind turbines. PHOTO: GETTY IMAGES

As such, investors who plan to diversify their portfolios and invest in sustainable energy sources will look to the mainland, which is home to some of the world’s largest solar, wind and environmental technology companies.

Global X China thematic ETFs, managed by Mirae Asset Global Investments, offer an innovative and efficient way to obtain exposure to the rapidly emerging themes of clean energy in China.

Mr Rui Yu, ETF Sales, vice-president of Global X ETFs at Mirae Asset Global Investments, says: “China has a strong commitment to clean energy because it can further enhance the welfare and quality of life of its citizens, and reduce its heavy reliance on imported oil. The Chinese government has continued to provide considerable policy support and subsidies to the clean energy sector and ambitious targets aimed at reducing emissions are expected in the next five-year plan.”

Electric vehicle sector takes off

In the electric vehicles (EV) sector, China’s growth prospects are equally strong. China dominates the supply chain for electric vehicles, which includes lithium-ion batteries and essential materials such as cobalt, nickel, manganese, graphite, lithium and rare earths.

As of 2019, China produced about 85 per cent of the world’s rare earth oxides and approximately 90 per cent of rare earth metals, alloys and permanent magnets. It also holds almost three-fourths of the world’s manufacturing capacity for lithium-ion battery cells.6

China has one of world’s most powerful ecosystems for the EV industry, which bodes well for continued growth and development. PHOTO: GETTY IMAGES

China’s pledge to become carbon neutral by 2060 will propel the growth of the electric vehicles sector further as electric vehicles produce zero direct emissions, which helps improve air quality, notably in urban areas.

In 2011, China sold fewer than 10,000 electric vehicles. By 2018, that number had risen to 1.26 million with an annual growth rate of 88 per cent. In the same year, China accounted for half of the electric vehicles sold in the world.7

Mr Yu comments: “China has developed one of the world’s most advanced EV ecosystems. Its global competitiveness spans the entire EV supply chain from raw materials, battery manufacturers, component and parts suppliers, EV voice recognition technology and charging infrastructure.

“The investment case for China EV has been further elevated this year and its long term attractiveness merits attention from investors. From the demand perspective, China has huge potential from both the public and private sectors whilst from the supply perspective, the country’s EV supply chain goes from strength to strength. These factors mean that China is on course to becoming a global leader in EVs and potentially one of the world’s leading exporters of EVs in the near future.”

Trade tension ignites the growth of local semiconductor industry

Meanwhile, amid tension with the United States over access to materials and technology needed for the manufacture of IT and telecommunications equipment, China has been pressed to rapidly develop its own semiconductor industry.

The industry has shown resilient growth following the Chinese government’s introduction of multiple policies to support supply chain localisation, giving rise to a surge in the number of local semiconductor companies.

Chinese IT companies have also chosen to diversify their suppliers by relying more on local firms. For instance, Xiaomi now has about 60 Chinese suppliers, accounting for 36 per cent of its costs, compared to 20 US suppliers which takes up 11 per cent. The Chinese government’s policy and financial support for the industry is expected to continue for the foreseeable future.

In short, China’s renewable energy, electric vehicle and semiconductor industries are set to offer savvy investors plenty of long term investment opportunities.

To find out more about China thematic ETF solutions, please visit Global X ETFs website here.

1 OECD, SCMP, September 2020
2 Caixin, November 2020
3 Reuters, Wood Mackenzie, Oct 8, 2020
4 Bloomberg News, Sept 15, 2020
5 Bloomberg News, July 8, 2020
6 China Power, Center for Strategic and International Studies, 2019
7 Global EV Outlook, International Energy Agency, May 2019

This document contains the opinions of Mirae Asset Global Investments (Hong Kong) Limited (“MAGIHK”) and is intended for your use only.

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All investments contain risks. Forecasts, past information, and estimates have certain inherent limitations. Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these opinions are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

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Issuer: Mirae Asset Global Investments (Hong Kong) Limited. This document has not been reviewed by the Securities and Futures Commission and Monetary Authority of Singapore in which this article is posted and no part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of MAGI HK.

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