The Global X China Sector Report: Q4 2020 can be viewed here. The report provides macro-level and sector-specific insights across the eleven major economic sectors in China’s equity markets.

In the fourth quarter of 2020, China’s economy continues to show strong resilience with economic activity continuing to build momentum after three quarters of expansion. Consumption, industrial output, and investment continued to grow with more factories coming back online and consumers continuing to spend more with a gradual reopening. Industrial production recovered early in 2020 but continued to rise throughout the year and by November reached its highest level in over two years. Fixed asset investment improved throughout Q4, while the urban jobless rate also fell for the fourth straight month in November, suggesting a protracted recovery across the economy going into 2021.

Within China, ten of the eleven major economic sectors in China generated positive equity returns in Q4 2020, with Real Estate as the lone negative performer. This is consistent with Q2 and Q3 performance, where ten of eleven sectors were positive as well, but with the Energy and Financials sectors turning negative quarterly performance, respectively. Only in the first quarter of 2020 did China experience a contraction, when all 11 sectors plunged amid the initial COVID-19 outbreak. In terms of contributions to overall returns in the MSCI China Index, the Communication Services sector played the greatest role, as China’s economic recovery continued to be helped by companies allowing people at home to stay connected.

Q4 China Sector Performance

Source: Bloomberg as of Dec 31, 2020

Performance shown is past performance, based on the NAVs of the underlying sector ETFs and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. To view standard performance each of the funds, please click on the links available under “Related ETFs” below this post.

Q4 China Sector Standard Performance

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. High short-term performance of the fund is unusual, and investors should not expect such performance to be repeated. Returns for periods greater than one year are annualized. For performance data current to the most recent month end, please call 1-888-493-8631, or visit www.globalxetfs.com.

Dispersion between China and US Sectors Normalizes

In Q4, the MSCI China Index (MXCN) and the S&P 500 Index (SPX) continued to rally, ending the quarter up 11.31% and 11.50%, respectively.

During Q4, Chinese sectors for the second time this year exhibited greater dispersion of returns compared to US sectors, which is consistent with historical patterns. Sector dispersion is the difference between the best and worst performing sectors in each country. In China, this dispersion was 32.01% in Q4, whereas in the US it was 29.13%. While sector dispersion is typically higher in China than in the US, dispersion is usually much wider in China than the 32.01% observed in Q4.

Q4 2020 China Sector Dispersion

Comparing and Contrasting US and China Sector Performance

In the chart below, we show performance of Global X ETFs that are designed to track China’s 11 GICS sectors, as well as their US sector index counterparts.

China vs. US Sector Performance Q4 2020

Performance shown is past performance, based on the returns of the indexes that the sector ETFs track and do not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted.

Consumer Sectors Drive Performance

During Q4, the Consumer Discretionary, Info Tech, Materials and Consumer Staples sectors outperformed the MSCI China Index as Chinese consumers were reassured by a persistent economic recovery reflected in the improving employment data. Within consumer sectors in China, e-commerce companies contributed positively as consumers continued to increase their reliance on online platforms to make purchases and order home food delivery amid tenuous reopening efforts.

Yet the largest contributions to returns in the Consumer Discretionary sector in both the US and in China was in automobile retail, which enjoyed a recovery after a particularly difficult first half of the year with a slowdown in big-item purchases because of consumer hesitancy. And whereas the performance of the Consumer Discretionary in the US was also led by restaurant sub-segment, the Chinese sector benefitted from a growth in apparel and luxury good sales, with re-opening efforts bringing people back into contact with others.

Despite the positive performance in both countries, China’s Consumer Discretionary sector more than tripled the returns of its US counterpart and outperformed its benchmark by more than 10% while the US sector underperformed its benchmark by more than 3%.

China Sector Underperformers

Sectors that underperformed the broader markets in both the US and China include Utilities, Health Care, and Real Estate.

China’s Real Estate sector experienced slightly negative growth in Q4, underperforming the MSCI China Index by roughly 20% amid fears of the sector having overheated and the reemergence of a real estate bubble.

While the Utilities sector underperformed its benchmark, the sector still achieved returns of over 15% for the quarter in China, suggesting that outperformance in Consumer Discretionary and Info Tech were exceptionally high and led to higher overall returns for the market versus more defensive sectors.

Lastly, Health Care’s recent slowdown – albeit with still positive returns – may be attributed to its strong performance during earlier quarters this year, as the sector was up 57.30% in 2020 – boasting more than 15% higher returns than the MSCI China Index’s returns over the same period.

Conclusion

After a long year of the pandemic battering different areas of the global economy, COVID-19 continues to reshape the global economic outlook with performance across global markets, including major economies like the US and China. Sectors across these markets are impacted by a bumpy recovery in uneven ways and over the past several quarters, have diverged significantly from their historical performance. As we saw throughout 2020, mixed economic responses to and recoveries from COVID-19 are difficult to navigate and manage without monitoring closely and adjusting sector exposures appropriately

Category: Reports

Topics: China, Emerging Markets

Investing involves risk, including the possible loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country and narrowly focused investments may be subject to higher volatility. The Global X International Access Suite Funds are non-diversified.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Beginning October 15, 2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn’t available, the midpoint between the national best bid and national best offer (“NBBO”) as of the time the ETF calculates current NAV per share. Prior to October 15, 2020, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time. The returns shown do not represent the returns you would receive if you traded shares at other times. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.

Carefully consider the funds’ investment objectives, risks, and charges and expenses. This and other information can be found in the funds’ full or summary prospectuses, which may be obtained at globalxetfs.com. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by MSCI nor does MSCI make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with MSCI.