Wall Street Remains Bullish On China
The November rally in U.S. equities may be garnering most of the attention (especially as we get closer to having a COVID-19 vaccine) but don’t sleep on China.
Among Direxion’s stable of leveraged ETFs, two of the five top-performing funds year to date provide magnified exposure to China. Here’s a breakdown of what has driven each fund higher.
Daily CSI 300 China A Share Bull 2X Shares
The Direxion Daily CSI 300 China A Share Bull 2X Shares (NYSE: CHAU) finds itself higher by about 17% over the past month. The ETF, which aims to deliver 200% the daily performance of the CSI 300 Index, has been propelled to its current levels thanks to strength across a surprising array of consumer-driven sectors including financials as well as consumer staples and discretionary stocks.
Standouts within the ETF include China Merchants Bank (OTC:CIHKY), higher by about 25% in November, and appliance manufacturers Gree Electric and Midea Group, which both rose about 15% during the month.
Bolstering these and other Chinese A-share equities in the index are strong consumer spending numbers. However, those spending numbers aren’t from Chinese consumers. Instead, these A-shares are being supported through strong export numbers to consumer economies outside of China, in neighboring countries like Singapore, Malaysia, and even the U.S. and Europe.
China’s own consumers are not so eager to spend, especially as an estimated 9% of its workforce remains unemployed. As a result, much of the country’s economic traction is coming from the country’s booming export figures, which may diminish if and when the world bounces back from the pandemic.
Nevertheless, the numbers have been an encouraging driver for Chinese stocks at large. And even though exports are the primary economic driver, they’re not the only one.
In a dynamic that U.S. investors are very familiar with, companies with large online presences have dominated and become increasingly central to China’s economy, as evidenced by the strength in Direxion’s Daily CSI China Internet Index Bull 2X Shares (NYSE: CWEB). Though the trade has cooled off of late, CWEB has still more than doubled in 2020.
That return is the product of fairly consistent growth across most of the country’s many internet giants. This of course includes e-commerce powerhouses Alibaba Group Holding Limited (NYSE:BABA) JD.com, Inc. (NASDAQ:JD) and Meituan-Dianping (OTC:MPNGF), the latter of which has seen massive growth thanks to its online food delivery.
However, the biggest standout among this internet contingent is the recently IPO’ed fintech KE Holdings, Inc. (NYSE:BEKE), which has surged 72% since its listing in early August. Backed in part by Japan’s SoftBank Group Corp (OTC:SFTBY), the online property platform has drawn comparisons to Zillow Group Inc (NASDAQ:ZG) and has ridden on rising enthusiasm in China’s economic resilience and sustained growth in boosting the nation’s real estate market.
Ultimately, what continues to drive China’s growth is its dedication to building itself by investing in public services and utilities like high-speed internet and essential infrastructure to bolster both its manufacturing and technological capabilities. These investments, combined with the allure of its rising middle class, appear likely to keep Wall Street bullish on China in spite of any geopolitical headwinds.
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