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Chelsea Rodstrum, Global X

Global X’s Rodstrom details China’s extraordinary 2020 recovery


China’s recovery from Covid-19 has been an extraordinary phenomenon among many strange events over this year, and China is now projected to be the only economy to have positive economic growth in 2020. 

Global X emerging markets analyst Chelsea Rodstrom has written a report detailing the huge gains the country has made in recent months to elevate many sectors of their economy.

“We think that China had a headstart in dealing with the pandemic and the extensiveness and cohesion of their social distancing polices paid off,” Rodstrom explains. “They implemented early and rolled back in a controlled, manner unlike in the west. This might be partly due to political structures but it is interesting to see how the sector is performing especially when compared against the US.”

Rodstrom’s report finds that Covid-19 changed the framework of society in China, and the world at large, as more people became reliant on technology for communication, entertainment and food delivery. The stay at home economy allowed certain commodities to soar, as others suffered amidst societal restrictions. 

With the exception of the Energy sector, all of the Global Industry Classification Standard (GICS) sectors in China generated positive returns in Q2 2020, and its Healthcare sector greatly outperformed that of the US, being China’s best performing sector in China during Q2, a sector that underperformed in the US relative to the S&P 500. 

China’s Consumer Staples sector also had comparatively impressive gains in China, due in large part to a spike in purchases of Moutai, China’s national alcoholic beverage, Rodstrom comments, however, it wasn’t all cheery in the sector. “In spite of these impressive gains, Chinese real estate and industrials suffered, though these losses were comparative to the downturn experienced in the US as well.”

Sectors in China had a wider dispersion of returns from early 2019 to mid-2020, Rodstrom says, and the impact of Covid has caused disruption across sectors but the more controlled reopening has caused less of the volatility seen in the US.

“The US is seeing recovery now but there is definitely a divergence between certain sectors like information technology, consumer staples and health care,” she says.

Given how integrated the US and China economies are, and the supply chains between the two, some sectors may have correlation between China and the US, but in certain sectors these are negative not positive.

An example is the information technology sector such as the makers of semi-conductors and chip which are in many mobile phones and laptops, many of which come from the US, with China representing a large portion of the customer base. However, this is set to change. “As they create their own domestic supply chain, the information technology sector in China could start to perform really well as it tries to meet its own domestic demand and the opposite may happen in the US if they start to lose sales,” Rodstrom says.

Most of the US’s supply of pharmaceuticals and PPE come from China. “That is a need that is not going away unless a miracle vaccine appears in the immediate future,” Rodstrom says.

Global X offers ETFs based on 11 sectors in China, plus a large cap China fund and others that include China in the portfolio with themes such as ecommerce or battery technology.

“Most investors realise that they have access already to China or exposure to China when they are invested in broad indexes, or even in a company that seems like the most typical US company like Walmart, which has exposure to China,” Rodstrom says. “These ETFs allow you to target your exposure to China, making a play on trade tensions or enhancing exposure to certain sectors and themes that have been playing out.

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