Current China Utilities Crunch Makes This ETF a Play

The blame can be traced back to out-of-control coal prices, which the Chinese government is trying to contain. In turn, the government hopes that it can ensure a steady supply of electricity, especially with winter drawing near.

As a Bloomberg report noted, “China is staring down another winter of power shortages that threaten to upend its economic recovery as a global energy supply crunch sends the price of fuels skyrocketing.”

“The world’s second biggest economy is at risk of not having enough coal and natural gas — used to heat households and power factories — despite efforts over the past year to stockpile fuel as rivals in North Asia and Europe compete for a finite supply,” the report added. “Demand for heating will jump when temperatures turn colder over the next few months, which could trigger power rationing similar to those seen last winter and over the summer.”

Electricity, in turn, has experienced a jump in prices. That’s not a good thing for consumers, but it opens up opportunities in utilities as electricity becomes a scarce commodity in China.

Industry experts don’t see the situation improving despite the government’s latest efforts. Electricity use has already jumped 16% during the first half of 2021.

“Industry insiders predict that the situation may worsen before it gets better, as the inventories of some power plants are inadequate while the winter season rapidly approaches,” a Global Times article said.

Up 30% year-to-date, China’s utilities crunch is translating to good gains on the year for the Global X MSCI China Utilities ETF (CHIU). CHIU seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI China Utilities 10/50 Index.

The fund invests at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index. The underlying index tracks the performance of companies in the MSCI China Index that are classified in the utilities sector, as defined by the index provider.

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