China Sector Report: Q3 2019

The Global X Q3 China Sector Report can be viewed here. The report provides macro-level and sector-specific insights across the eleven major economic sectors in China’s equity markets.

Summary

China’s economic growth fell to 6% during Q3 2019, its slowest annual rate in almost three decades.¹ Most of the GICS (Global Industry Classification Standard) sectors in China posted negative returns over the quarter, with only 3 sectors performing positively. Relative to broad China (MSCI China), the Information Technology, Health Care, and Consumer Staples sectors performed best, while Real Estate and Materials performed worst.²

The Information Technology sector outperformed overall in Q3 after a strong rebound in September was prompted by Chinese efforts to steady its currency and negotiate on trade with the US, barring the imposition of additional or increase of current tariffs.³ The sector also benefitted from the anticipation of potential investments and government sponsorship of 5G network technology and infrastructure.

The Health Care sector also performed well, supported by the recent passage of amendments to China’s Drug Administration Law. The reforms strengthen the industry by encouraging drug innovation, revising the drug review and approval system to be more efficient, and redefining the scope of counterfeit or inferior drugs.^4,5  However, the sector struggled in September because of tariff increases announced by the US on high-end medical devices and domestic price cuts on generic drugs.⁶

The Consumer Staples sector also contributed positively to the MSCI China Index, partially owing to government efforts to boost consumption or bolster growth.⁷ However, returns weakened within the Staples sector as the US imposed its latest round of tariffs, effective September 1, 2019.⁸

In terms of volatility and returns, the Real Estate and Communication Services sectors were among the worst hit sectors during Q3. Real Estate was adversely affected by tighter credit and weaker home sales, while Communication Services was weighed down by a Federal ban in the US on Chinese telecom equipment, as well as weaker domestic sales of telecoms following a government mandate to cut service fees for customers.^9,10

Related ETFs

• The Global X MSCI China Communication Services ETF (CHIC)
• The Global X MSCI China Consumer Discretionary ETF (CHIQ)
• The Global X MSCI China Consumer Staples ETF (CHIS)
• The Global X MSCI China Health Care ETF (CHIH)
• The Global X MSCI China Energy ETF (CHIE)
• The Global X MSCI China Financials ETF (CHIX)
• The Global X MSCI China Industrials ETF (CHII)
• The Global X MSCI China Information Technology ETF (CHIK)
• The Global X MSCI China Materials ETF (CHIM)
• The Global X MSCI China Real Estate ETF (CHIR)
• The Global X MSCI China Utilities ETF (CHIU)