How to Buy Into China's Tech and Internet Boom With ETFs 1

Growth drivers for the technology sector

In recent years, much has been said about China’s economy slowing down with the government focusing on the country’s consumption growth rather than export-oriented expansion policies. Despite sluggish economic growth, experts see an opportunity in the country’s technology and e-commerce sectors. Given the country’s large population, consumption driven sectors like technology and services are expected to generate high returns.

China’s Internet and smartphone markets are much bigger than those in the US and are growing at a faster pace. Economic growth in China, despite the slowdown, is higher than most developed western nations and just behind India. The country also has a growing affluent population with rising disposable income.

The US Internet analysts team at Barclays recently mentioned in a report, “And it’s a huge market with 700 million smartphone users, encompassing half of the population, and it has expanded by roughly 50 million new mobile users annually over the past two years,”

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“In China, logistics have been aggressively built out over the past decade … (JD) is taking the Amazon approach and building everything end-to-end itself to ensure the highest service levels, but absorbing all those costs as well,” according to the Barclays note posted by Barron’s. “Alibaba has taken the partnership approach whereby it links the network of preferred service providers using advanced software to ensure high service levels (Cainiao), but avoids the costs of building out warehouses and delivery.”

James McDonald, chief investment officer at Index Strategy Advisors stated, “Tech and Internet are booming in China, because unlike in the West, it’s still an emerging consumer service. He continued, “Hundreds of millions of citizens aren’t yet connected, and the e-retailing market is expanding quickly. This is really the only way to make money in terms of ETF investing, in my view.”

Three ETFs offer investors exposure to the booming technology sector in China.

  • Guggenheim China Technology ETF (CQQQ)
  • Global X Nasdaq China Technology ETF (QQQC)
  • Krane Shares CSI China Internet ETF (KWEB)

Investors seeking diversified exposure to China could also consider the iShares China Large Cap ETF (FXI). This ETF invests 23% of its portfolio in technology related stocks.


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