Is CHIQ Stock A Buy?

The MSCI China Consumer Discretionary ETF (NYSE:CHIQ) is one of Global X’s thematic ETFs focused specifically on the Chinese market.

It tracks mid- and large-cap Chinese stocks involved in non-essential purchases, and that makes it a decent indicator of the country’s economy. You may believe in the future of China, but is CHIQ stock a Buy?

The MSCI China Consumer Discretionary ETF tracks 75 holdings across investable and eligible Chinese equities in a 10/50 index. This makes it an efficient investment vehicle to gain exposure to a broad range of customers in a specific industry and geography.

China’s economy was the first to be hit by the pandemic, and it could be the first to recover. As it does so, consumers will have their essential bills paid and be more open to non-essential purchases.

Is this “economy index” a smart play over the next decade?

CHIQ Offers Exposure To Chinese Consumer

Mirae Asset Financial Group is a Seoul, South Korea-based asset management company that started the Global X company. Global X provides exchange-traded funds (ETFs) focused on specific themes and was one of the first to do so, along with Ark Investments.

As time went on, so did the firm’s research. It shifted towards disruptive technologies, geopolitical strife, and other issues that gave investors a piece of the future.

ETFs under its portfolio cover industries like esports, FinTech, digital health, and artificial intelligence. Trends associated with Millennials or dividend-bearing ETFs are also often created. And there are several themes specific to geographic areas, like China.

CHIQ’s index includes 75 companies, and its largest holdings include Meituan, Alibaba, Nio, JD.com, and Pinduoduo. Each of these companies is an ecommerce giant and many reached historic high revenues and market capitalizations over the past year.

In fact, browsing the index is a great way to familiarize yourself with the Chinese consumer discretionary market. If you don’t live in the country, it can be difficult to keep your finger on the pulse otherwise. It also shows how the country is recovering well from initial lockdowns.

That has bullish analysts wondering if the Chinese Consumer Discretionary ETF is a good buy.

Is CHIQ ETF A Buy?

The economy flatlined in 2020, and share prices traded as low as $14.35 when the pandemic spread in earnest. But by January 2021, CHIQ share price traded as high as $35.00 per share.

It pulled above $40.00 before Q1 was over, showing great resilience and growth. Much of this is because of the top three holdings, which together account for 25 percent of the entire portfolio.

Meituan (OTCMKTS:MPNGF) is an ecommerce platform that combines local retail with the internet through on-demand delivery, customer reviews, and more. It’s everything Yelp Inc (NYSE:YELP) wants to be in the U.S. Also Groupon Inc (NASDAQ:GRPN), for that matter, as the company offers group deals for a variety of experiences.

The company’s stock is up from $12.00 per share in Feb 2020 to $50.00 per share in Feb 2021.

Alibaba (NYSE:BABA) is the Chinese Amazon, and it grew by serving a wholesale audience that often ends up reselling on marketplaces like Amazon (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY).

Like its arch-rival, Amazon, the company has expanded into other verticals as it grew over the decades.

Alibaba’s founder Jack Ma ran into antitrust trouble with Chinese regulators, strangling BABA share price and providing a possible discounted buy opportunity.

Nio (NYSE:NIO) is China’s answer to Tesla Inc (NASDAQ:TSLA) and another star of the portfolio. Shares in this EV maker rose from a low of $2.11 in 2020 to well over $60.00 in 2021. This 30x ROI has investors cheering the competition.

Between these three companies (and the rest of the portfolio), investors can gain a broad exposure to innovative Chinese companies. Of course, there are risks involved when investing in China companies or a China ETF for that matter.

CHIQ Is Tethered To Chinese Government Decisions

A major cloud looming over CHIQ is the potential actions of the Chinese government. Uncertainty over how to handle the initial COVID-19 epidemic along with unclear reporting, slowed the overall economy’s growth. And strict regulations often slow innovations like Bitcoin (and FinTech in general).

Should Chinese citizens hit a recession, discretionary spending is the first thing that will go. This entire index could be at high risk in that case.

A trade war between the U.S. and China was expected to cool with an administration change, but that isn’t the case so far. Should socioeconomic forces continue to be aggressive, it’s possible both economies could stumble.

In this case, some competitors could step in.

CHIQ ETF Vs Alternatives

It’s not just the U.S. and China that have versions of all these technologies. For example, MercadoLibre and Jumia are often referred to as the Amazon’s of South America and Africa.

China is a growing economy that didn’t take long to become the largest in the world. It has a lot of valuable resources, like rare metals, that are vital to the modern economy. Although the government is strict, leadership surely wants its brands to beat the competition.

Still, brands like Apple (AAPL) and Tesla (TSLA) have a big presence in the country, and others like Starbucks (SBUX) and Nike (NKE) are growing fast too. Should more global companies learn to tap the Chinese consumer’s wallets, it could spell trouble for some of these leaders.

Is CHIQ Stock A Buy? The Bottom Line

CHIQ is an ETF from Global X that tracks China’s discretionary spending index. It gives American investors a “safe” way to spread their money across a lot of companies with exposure to the Chinese economy. This is good for diversification, but it does have risks.

Should China’s economy struggle, this ETF could be one of the hardest hit. It’s focused on discretionary purchases, and as consumers suffer these dry up. Be wary of economic downfall, but otherwise, it’s a nice hedge against the American economy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.