Investors should not base investment decisions on this website alone. Please refer to the Prospectus for details including the product features and the risk factors. Investment involves risks. There is no guarantee of the repayment of the principal. Investors should note:
- Global X China Consumer Brand ETF’s (the “Fund’s”) investment in equity securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.
- The performance of companies in the consumer sector are correlated to the growth rate of the global market, individual income levels and their impact on levels of domestic consumer spending in the global markets, which in turn depend on the worldwide economic conditions, which have recently deteriorated significantly in many countries and regions and may remain depressed for the foreseeable future.
- China is an emerging market. The Fund invests in Chinese companies which may involve increased risks and special considerations not typically associated with investments in more developed markets, such as liquidity risk, currency risks, political risk, legal and taxation risks, and the likelihood of a high degree of volatility.
- The trading price of the Fund’s unit (the “Unit”) on the Stock Exchange of Hong Kong is driven by market factors such as demand and supply of the Unit. Therefore, the Units may trade at a substantial premium or discount to the Fund’s net asset value.
- The Fund’s synthetic replication strategy will involve investing up to 50% of its net asset value in financial derivative instruments (“FDIs”), mainly funded total return swap transaction(s) through one or more counterparty(ies). Risks associated with FDIs include counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk. FDIs are susceptible to price fluctuations and higher volatility, and may have large bid and offer spreads and no active secondary markets. The leverage element/component of an FDI can result in a loss significantly greater than the amount invested in the FDI by the Sub-Fund.
- As part of the securities lending transactions, there is a risk of shortfall of collateral value due to inaccurate pricing of the securities lent or change of value of securities lent. This may cause significant losses to the Fund. The borrower may fail to return the securities in a timely manner or at all. The Fund may suffer from a loss or delay when recovering the securities lent out. This may restrict the Fund’s ability in meeting delivery or payment obligations from realisation requests.
The Resilience and Growth Potential of Global X China Consumer Brand ETF (2806)
Gives investors exposure to the expanding Chinese consumer market, which is anticipated to grow further as China's middle class grows and the country's consumer spending rises. Investors in this ETF may be benefited from the expansion of Chinese consumer brands, which are anticipated to acquire market share as China's economy continues to rise.
Unlocking the Potential of Global X China's Consumer Brands ETF (2806)
Long-term Growth
Benefit from the long-term growth potential of China's rising middle class and increasing disposable income
Resilience and Adaptable
Invest in established and well-known brands have demonstrated strong financials, market share, and brand recognition in China's consumer sector, also, weathered the pandemic
High Potential Growth
Take advantage of Post-pandemic rebound and capture potential growth opportunities
Why now
China’s consumption recovery has been slower than expected, while only luxury spending and service-oriented sectors, particularly travel with high pent-up demand, have shown resilient growth so far. That said, March retail sales growth at +10.6%yoy came in higher than the street’s expectation of +7.5%yoy growth*. We expect to see strong growth in the next two months thanks to a low base considering last year’s lockdown (Shenzhen in March and Shanghai in April-May). Then, we expect to see a meaningful consumption recovery trend along with improvement in the job market and wage growth, which will drive improvements in consumer confidence. While consumer confidence recovered in February to the mid-90s after reopening from last year’s mid- to high-80s level amid Zero-Covid, it is still 15% below the pre-lockdown level in March 2022. Consumer confidence has been steadily improving, but this takes time as we need economic recovery to support labor market and income growth before consumer confidence can improve further to lead to meaningful consumption growth.
Insights
China's Consumption Power
China's consumption power has been rapidly growing, driven by the country's rising middle class, increasing urbanization and China's increasing GDP. The demand for high-quality consumer products is growing, which presents a significant investment opportunity. As more and more Chinese citizens move into the middle class, their purchasing power has increased, leading to a surge in consumer spending.
In general, China's consumption power is a major factor in the expansion of the economy and offers great potential for investors.
Government’s Support
The Chinese government is actively supporting the growth of Chinese brands to boost economic growth and global influence. Initiatives such as the Belt and Road Initiative aim to accelerate global trade and infrastructure. The government also supports Chinese businesses expanding internationally through financial incentives and support. Efforts to foster domestic growth include initiatives like the "dual circulation" strategy, leading to increased investment in domestic infrastructure, particularly in sectors like logistics and e-commerce.
The common prosperity policy aims to reduce income inequality, potentially affecting consumer behaviour and preferences. For example, consumers may prioritize brands aligned with policy values, while increased regulations and oversight could impact brands through higher taxes or stricter advertising restrictions.
China’s Gouchao Trend
"Guochao" represents a cultural trend that celebrates traditional Chinese culture and heritage, which has resonated with many young Chinese consumers who are increasingly proud of their cultural identity.
To appeal to younger consumers, several domestic Chinese firms have begun incorporating traditional Chinese cultural components into their products and marketing approaches. Many younger Chinese consumers now feel a feeling of cultural pride and identity, which has sparked their interest in homegrown companies that pay homage to their cultural history.
A surge in disposable income as a result of the middle class's expansion in China has also increased consumer expenditure.
Overall, the "Guochao" trend could increase Chinese consumers' spending on local brands.
Q&A - FAQ on China Consumer Brand ETF
What is the long-term outlook for China’s consumption?
China has become one of the largest consumer markets for many consumer goods. Yet, penetration still remains low thanks to its vast population and, more importantly, most of whom are affordable consumers. It is expected that nearly 340 million Chinese people are expected to enter the “consuming class1 ” between 2020 and 2030.2 In addition, newly emerging consumers in China are more local brand-friendly, which provides growth opportunities for strong local brands that lead new consumption trends in China.
China’s household saving rate peaked at 39% in 2010 and has declined since then. Similarly, private consumption expenditure as % of GDP bottomed in 2010 and has since gradually increased. While the pandemic temporarily disrupted this trend in recent years, the structural trend has not changed. As reopening continues, we expect to see private consumption driving economic growth again this year. We believe China’s land-fiscal model has reached an inflection point, making private consumption even more vital for future growth. Chinese authorities are pivoting towards higher quality growth driven by dual circulation and common prosperity to boost demand. Saving rates have also temporarily gone up amid zero-covid last year, which we think will get released back into consumption as China’s consumer confidence restores.
1Consumer class as defined by daily spending (2011 PPP, $)
2Source: World Data Lab, Brookings Instutition, Statista, October 2021.
What is the near-term outlook for China’s consumption?
China’s consumption recovery has been slower than expected, while only luxury spending and service-oriented sectors, particularly travel with high pent-up demand, have shown resilient growth so far. That said, March retail sales growth at +10.6%yoy came in higher than the street’s expectation of +7.5%yoy growth3. We expect to see strong growth in the next two months thanks to a low base considering last year’s lockdown (Shenzhen in March and Shanghai in April-May). Then, we expect to see a meaningful consumption recovery trend along with improvement in the job market and wage growth, which will drive improvements in consumer confidence. While consumer confidence recovered in February to the mid-90s after reopening from last year’s mid- to high-80s level amid Zero-Covid, it is still 15% below the pre-lockdown level in March 2022. Consumer confidence has been steadily improving, but this takes time as we need economic recovery to support labor market and income growth before consumer confidence can improve further to lead to meaningful consumption growth.
3Source: NBS, Bloomberg, April 2023.
What’s your view on baijiu and beverage brands?
Premium baijiu like Kweichow Moutai has seen earnings upgrades this year as premium baijiu is part of luxury spending. Wealthy consumers globally have shown strong spending even this year, and that’s also been the case in China. Kweichow Moutai announced its 1Q23 preliminary results, with sales and net profit growing +18%yoy and +19%yoy, respectively, beating the market’s expectation as well as its annual growth guidance of +15%yoy4.
We saw a slower pace of recovery for baijiu in March, similar to that of overall consumption. There might have been more competitive pressure on mid-end baijiu brands amid the low season in March. However, we expect baijiu to be one of the beneficiaries of reopening, considering baijiu is consumed largely during social gatherings and banquets in China, which was heavily impacted by zero-covid last year, especially in 4Q22. Thus, we believe baijiu companies will show stronger sales and earnings growth in the coming quarters along with China’s overall consumption recovery trend.
4Source: Mirae Asset, March 2023.
What’s your view on home appliance brands?
Compared to other consumption retail categories, home appliance sector were amongst the most impacted by Covid lock-downs and property sector weakness. Into 2023, we’re positive on home appliance brands in 2023, driven by domestic pent-up demands along the “property value chain” supported by restored confidence and a property completion recovery. In particular, central airconditioners, kitchen appliances, customized/upholstered furniture will benefit more from such a recovery as they originate over half of their sales from the property market. For overseas, we expected a relatively sluggish home durable goods demand compared to the domestic market against weak macro growth in 2023.
What’s your view on sportswear brands?
Sportswear sector has seen continuous sales growth recovery in 2023, as commented by major sportswear brands like Li Ning and Anta. According to the two, March offline retail sales growth has significantly accelerated from Jan-Feb 2023, and retail sales growth further accelerated into April, driven by a recovery in offline foot traffic as well as consumer spending. Domestic brands gained meaningful market share since 2021 from international brands like Adidas. With their increased dedication on improving product quality and design innovations, we expect a continuously stronger brand recognition of domestic sportswear brands amongst local consumers.
What’s your sense of valuations across consumer sub-categories?
Currently, 12 month forward P/E is approaching near five year low levels for most consumer categories5.
In most advanced economies, consumption is highly related to job market conditions. Is that the case in China? What is the most important indicator to forecast consumption trends in China?
Yes, similar to other advanced economies, consumption is highly related to the job market and income growth in China. This is why luxury spending and travel-related consumption have grown strongly this year, but the overall consumption recovery pace has been slower than anticipated. As mentioned above, we expect labor market and wage growth to recover in the coming months, improving consumer confidence and leading to overall consumption recovery in China.
Why do you focus on consumer brands vs retailers like e-commerce platforms?
China’s e-commerce penetration has grown to over 35% of total retail growth in 2022E.6 E-commerce will continue to grow faster than overall retail growth, but the base has become big; thus industry growth rate is expected to be in the low-teens level in the next few years.
Consumer brands can have different growth paths for different categories and brands. Good consumer categories, such as sportswear, can grow faster than overall retail sales, and leading brands, such as Li Ning or Anta, can grow faster than overall sportswear growth. Thus, they deliver more attractive growth opportunities than retailers.
Local brands have been gaining market share across different industries, including sportswear, EV, cosmetics, etc. We expect this trend to continue for most consumer categories except for luxury goods. Thus, we believe investing in leading local brands can be a good way to ride on consumption growth in China.
6Source: Morgan Stanley, 2023.
Thanks to well-established brand equity, consumer brands tend to have strong moats in mature economies. However, it might not be the case in China. What’s your view on the competitive landscape for consumer brands in China?
Consumer brands also have strong moats in China, and these moats get stronger as the market gets consolidated. This is because it gets harder for new entrants to join the market and compete with companies with strong national brand. That said, it is true that China is still a more competitive market because the penetration level for many consumer categories is still low, and thus the growth rate for the industry is faster, so there are still new entrants entering the market to share the growth. Mass cosmetics is an example where locals have gained market share from foreign brands, and leading mass brands like Proya have delivered robust top-line and bottom-line growth but still have less than 2% of total cosmetics market shares in China. Thus, the company still has to maintain its competitiveness and cater to the fast-changing demand of young consumers while improving product quality to increase its share, build stronger moats, and make its brand more sustainable.
China’s consumption is still at an early stage of long-term structural growth. Thus, winning brands may continue to change, but our concentrated China consumer brand ETF will try to capture the best local Chinese brands to ride on this consumption growth in China.
Why ETF?
2806
Global X China Consumer Brand ETF
| Stock Code | 2806 (HKD) / 9806 (USD) # |
| Underlying Index | Solactive China Consumer Brand Index NTR * |
| Total Net Asset Value** (As of ) | HKD $ |
Ongoing Charges Over A Year^ | 0.68% |
| Inception Date | 16 Jan 2020 |
# Investment involves risk. Before making any investment decision to invest in the Fund, investors should read the Fund’s Prospectus for details and the risk factors. Visit Global X ETFs Hong Kong website for more details relating to this Fund (including but not limited to the Fund’s iNAV, market price, performance, daily holdings and tracking difference / error).
* The underlying index is a net total return, free-float market capitalization-weighted index that provides the net total return on investments. The net total return index is an index whose performance reflects the reinvestment of dividends or annual interest payments, net of any withholding taxes (including any special charges).
** Source: Mirae Asset Global Investments (Hong Kong) Limited.
^ The Fund adopts a single management fee structure, whereby a single flat fee will be paid out of the assets of the Fund to cover all of the costs, fees and expenses of the Fund. Click [?] to learn more.
