Will China’s Spending Spree Drive Luxury ETF Higher?

by on December 7, 2009 | ETFs Mentioned:

In yet another sign that China has become one of the most powerful global economic forces, Daimler AG announced on Monday that sales at its Mercedes-Benz car division rose 16% in November, due in large part to strong growth in demand from the emerging Asian economy. “A total of 8,700… cars were delivered in China last month –nearly three times the number sold in November 2008,” said the German automaker. Separately, Audi AG announced that sales in China more than doubled last month, and that the company expects China to replace Germany as its largest market by 2013. BMW reported that China sales have seen a January-to-November sales jump of more than 35%.

ShanghaiFor much of the developed world, the recent wave of economic crises resulted in sharp contractions in economic activity followed by a long road to a recovery. While China certainly didn’t come through the downturn unscathed, it managed to generate significant GDP growth in 2008, one of the only countries in the world to do so.

The sales figures from major luxury automobile manufacturers are further proof that China’s wealth continues to grow, and that this increase in quality of life is translating into increasingly active consumers. With most developed economies facing a “new normal” and a long road to recovery, companies around the world are looking to China to drive future growth.

Will Luxury ETF Benefit?

For investors looking to capitalize from an uptick in wealth and spending habits in China, there are a couple ETFs that may be of interest. The Claymore/Robb Report Global Luxury Index ETF (ROB) invests in companies whose primary business is the provision of luxury goods and services, and counts Daimler, BMW, and Porsche among its largest holdings. Components of ROB aren’t exclusively automakers though – other holdings include Swatch, Coach, Christian Dior, and Polo Ralph Lauren.

While there are a number of consumer discretionary ETFs available (see a complete list here), many of these funds include allocations to stocks like McDonald’s and Target – not exactly luxury goods and services. ROB represents the very high end of consumer products companies, making it vulnerable to cutbacks in discretionary spending (as we saw during the economic downturn) but providing potential for big gains when wealth and spending are on the rise.

ROB

Another ETF that offers exposure to China’s rising middle class is the Global X China Consumer ETF (CHIQ), which (as its name suggests) invests in companies that have their main business operations in the consumer sector and are domiciled in China. Launched earlier this month, CHIQ is one of the first exchange-traded products allowing investors to gain exposure to specific sectors of China’s fast-growing economy. This ETF makes meaningful allocations to retail, food, and automotive companies.

Disclosure: No positions at time of writing.