On Tuesday, Claymore Securities launched its China Technology ETF (CQQQ), the first U.S.-listed ETF to focus on the Chinese technology sector. CQQQ joins three other China ETFs from Claymore (YAO, HAO, TAO) that have accumulated more than $500 million in aggregate assets. The new ETF will seek to replicate the AlphaShares China Technology Index, a benchmark designed to measure the performance of the companies based in mainland China, Hong Kong, or Macau that operate in the technology sector. As of October 31, the index consisted of 34 securities.
Putting The “C” In Technology
China has grown to become one of the world’s largest economy, and continues to gain on its major rivals. While many developed nations have endured economic contraction and now face a long, slow road to recovery, China continues to expand at a torrid pace. It is expected to post the world’s highest GDP growth in both 2009 and 2010, with ongoing market developments creating a middle class that is larger and wealthier than ever before. By 2025, 90% of China’s urban households – a massive chunk of the global demographic – is projected to be middle class.
Continued growth and wealth creation in China has the potential to drive China’s technology sector to major gains in coming years. Approximately $54 billion of China’s $585 billion stimulus package is being allocated to technology advancements, with a new focus on high-end production. This investment, along with the ongoing increases in wealth, may create a huge demand for new technologies and improvements to existing technologies. “China is developing intellectual property at a rapid rate and is already a technology powerhouse, said AlphaShares CIO Dr. Burton Malkiel. “CQQQ allows suitable investors to gain exposure to what I believe to be an important and fast growing sector of the Chinese economy.”
China is home to many cutting edge technologies already. Claymore’s Solar Energy ETF (TAN), for example, has more than a quarter of its holdings in Chinese equities. While there are several ETFs offering exposure to the global technology sector, none have any meaningful allocations to China. The iShares S&P Global Technology Index Fund (IXN) and WisdomTree International Technology Sector Fund (DBT) don’t have any Chinese holdings, and the SPDR S&P International Technology ETF (IPK) has a 0.50% weight in Hong Kong.
More On The Way
Claymore recently filed for two additional sector-specific China ETFs, including industrials and consumer products funds. These ETFs would compete with two recently-launched ETFs from Global X, the China Industrials ETF (CHII) and China Consumer ETF (CHIQ). The development of sector-specific international ETFs has been one of the most active corners of the ETF industry in recent months, with CQQQ and Global X coming after launches of three sector-specific emerging markets ETFs from Emerging Global Advisors.
Disclosure: No positions at time of writing.