Market Overview

Communication Services The China Way

Communication Services The China Way

In the United States, investors are acknowledging the newly minted communication services sector in significant fashion. The Communication Services Select Sector SPDR (NYSE: XLC), which debuted last June, already has $4.21 billion in assets under management.

Being home to the likes of Facebook Inc. (NASDAQ: FB) and Alphabet Inc. (NASDAQ: GOOG) is proving advantageous for XLC.

What Happened

The communication services sector is not confined to the U.S. In the U.S., communication services is the fourth-largest sector weight in the S&P 500, but in China, the sector is that country's third-largest sector. That theme is accessible via the Global X MSCI China Communication Services ETF (NASDAQ: CHIC).

While not close to XLC, CHIC is on a pretty steady growth trajectory of its own. The ETF is just two months old and already has $27.63 million in assets under management.

Why It's Important

“Overall, analysts anticipate that China’s Communication Services will deliver higher revenue growth versus its US counterpart, owing to several thematic tailwinds, including deepening internet penetration, rising wages & consumption, changing consumer habits to favor new technologies, and government support – all of which is discussed in greater detail later in this piece,” according to Global X research.

Like XLC, CHIC has the advantage of being home to some prominent stocks. Tencent Holdings Ltd. (OTC: TCEHY), China Mobile Ltd. (NYSE: CHL) and (NASDAQ: BIDU) are among CHIC's largest holdings.

Investors do not have to pay up for the growth opportunities offered by CHIC.

“Despite higher growth expectations, valuations appear cheaper than its US counterpart, across price-to-earnings, price-to-sales, and price-to-book metrics,” said Global X.

What's Next

Increasing Internet penetration in China and Chinese consumers' increasing preferences for technology are among the long-term fundamental factors that could buoy CHIC.

“Despite a lower percentage of internet penetration, China’s substantially larger population and avid adoption of new technologies has resulted in 3x as many internet users, 3.75x more mobile phone users, and 7.5x amount spent on mobile transactions compared to the U.S..” notes Global X.

CHIC, which follows the MSCI China Communication Services 10/50 Index, is up 9.03 percent year-to-date.

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