Global X, the issuer behind funds offering exposure to the economies of Colombia and the Nordic region, announced the launch of its newest sector-specific China ETF today. The China Materials ETF (CHIM) will be the latest addition to the line of ETFs offering targeted exposure to the economy of China, which already includes five sector funds offering exposure to energy (CHIE), industrials (CHII), consumer (CHIQ), technology (CHIB), and financials (CHIX).
This new fund will offer investors exposure to the materials sector in China by tracking the S-BOX China Materials Index, a benchmark that consists of companies which have their main business operations in the materials sector and are based in China or have their main business operation in the country. The fund, which currently has 28 about holdings, will have an expense ratio of 0.65%. Two-thirds will be in metals and mining, with the remaining third in the chemicals industry. Some of the largest holdings include: Aluminum Corporation of China, Zijin Mining Group and Jiangxi Copper.
The basic materials sector is one that is poised to grow quickly within the overall Chinese market, and there are many reasons to be bullish on China’s demand for materials. Just over 8% of China’s imports are ores and metals, suggesting that the domestic basic materials industry has plenty of room to grow. Also, despite the fact that China produces more coal than any other country by far, it does not even rank in the top 15 for coal consumption per capita. As the trend towards urbanization in China continues and the country’s middle class swells in size, demand for materials to build urban housing and infrastructure could surge.
China just passed the United States as the biggest car market in the world yet still has only 35 cars per 1000 people, roughly 1/20th of the American rate. “Millions of Chinese are moving into the $5,000 to $6,000 salary base, which is when consumers typically start moving from pure staple type consumption to actually starting to consume discretionary items,” said Global X CEO in an interview last month. China’s rate of urbanization has been truly impressive: the percentage of the population living in cities increased from 26% in 1990 to 46% at the end of 2008, and is expected to increase to 70% over the next 25 years.
Continued urbanization and increases in wealth could translate to a significant rise in automobile ownership and infrastructure needs in what may soon be the world’s second-largest economy, ensuring that China’s basic materials industry has significant room for growth in coming years.
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Disclosure: no positions at time of writing.