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China Rising: Long-Term Growth Potential with Chinese Equities

Susanne Alexandor

China Rising: Long-Term Growth Potential with Chinese Equities

Snapshot
China is the world’s second largest economy by nominal gross domestic product (GDP), and already the largest, based on Purchasing Power Parity (PPP). It is transitioning into a diverse and more sophisticated country with rising per capita GDP, while its capital markets are liberalizing. Investors should consider ZCH to participate in this long-term growth opportunity.

Details
BMO China Equity Index ETF (Ticker: ZCH)

Timely Benefits After declining sharply in 2018 to a four-year low, Chinese equities have rebounded strongly in 2019. The economy has stabilized, with policy support aimed at avoiding an economic slowdown and the trade dispute with the U.S. likely to be resolved.

Trade Idea – ZCH
We believe Chinese equity investments offer an attractive long-term growth opportunity. China’s population of 1.4 billion is approximately four times that of the U.S. Despite the recent slowdown, its economy is still one of the fastest growing in the world, outpacing the U.S. rate of growth by almost 3 times. China is investing in its future, with the largest education system in the world, and more university students than the U.S. and EU combined.

Investing in China is becoming more accessible, with leading index providers increasing the inclusion of select local shares. At the same time, China is lifting restrictions to foreign buyers. As Chinese representation in global indices and accessibility expands, investor awareness and interest are expected to grow as well. While the Chinese market has rallied significantly year-to-date, its valuations remain lower than its counterparts in the developed markets. Earnings growth and double digit return on equity are expected to be sustained, given the positive outlook for the economy.

ZCH offers exposure to the expanding domestic economy by holding significant positions in some of the most dominant players in communications and internet services, while also providing diversified exposure to the economy in general. In addition, it invests exclusively in American Depository Receipts listed in the U.S., which are subject to international, as opposed to local, accounting standards. 

Outlook
China is undergoing a shift from an export-oriented to a more consumer and service-driven economy, and is expected to surpass the U.S. as the world’s largest economy, in nominal terms, in the next decade. Foreign access to the market is increasing, and while some challenges remain that could ultimately constrain growth, such as demographics and high debt levels, the opportunities should outweigh the risks. ZCH offers a solution to passively invest in the dominant companies in China. Long-term investors should be rewarded.

bmo-etfs_02chinarisingchart848px_2019-05-02_ENG.jpg#asset:2638


Source: Andrea Willige, “The world’s top economy: the US vs China in five charts,” December 6, 2016.

Susanne Alexandor

China Rising: Long-Term Growth Potential with Chinese Equities

Snapshot
China is the world’s second largest economy by nominal gross domestic product (GDP), and already the largest, based on Purchasing Power Parity (PPP). It is transitioning into a diverse and more sophisticated country with rising per capita GDP, while its capital markets are liberalizing. Investors should consider ZCH to participate in this long-term growth opportunity.

Details
BMO China Equity Index ETF (Ticker: ZCH)

Timely Benefits After declining sharply in 2018 to a four-year low, Chinese equities have rebounded strongly in 2019. The economy has stabilized, with policy support aimed at avoiding an economic slowdown and the trade dispute with the U.S. likely to be resolved.

Trade Idea – ZCH
We believe Chinese equity investments offer an attractive long-term growth opportunity. China’s population of 1.4 billion is approximately four times that of the U.S. Despite the recent slowdown, its economy is still one of the fastest growing in the world, outpacing the U.S. rate of growth by almost 3 times. China is investing in its future, with the largest education system in the world, and more university students than the U.S. and EU combined.

Investing in China is becoming more accessible, with leading index providers increasing the inclusion of select local shares. At the same time, China is lifting restrictions to foreign buyers. As Chinese representation in global indices and accessibility expands, investor awareness and interest are expected to grow as well. While the Chinese market has rallied significantly year-to-date, its valuations remain lower than its counterparts in the developed markets. Earnings growth and double digit return on equity are expected to be sustained, given the positive outlook for the economy.

ZCH offers exposure to the expanding domestic economy by holding significant positions in some of the most dominant players in communications and internet services, while also providing diversified exposure to the economy in general. In addition, it invests exclusively in American Depository Receipts listed in the U.S., which are subject to international, as opposed to local, accounting standards. 

Outlook
China is undergoing a shift from an export-oriented to a more consumer and service-driven economy, and is expected to surpass the U.S. as the world’s largest economy, in nominal terms, in the next decade. Foreign access to the market is increasing, and while some challenges remain that could ultimately constrain growth, such as demographics and high debt levels, the opportunities should outweigh the risks. ZCH offers a solution to passively invest in the dominant companies in China. Long-term investors should be rewarded.

bmo-etfs_02chinarisingchart848px_2019-05-02_ENG.jpg#asset:2638


Source: Andrea Willige, “The world’s top economy: the US vs China in five charts,” December 6, 2016.