China’s increasing emphasis on technological innovation – particularly as it relates to the energy transition – is expected to drive the next phase of economic growth and creates opportunities for investors.
Technological self-sufficiency has been adopted as a core tenet of national development in China’s recently announced 14th 5-year plan for 2021-2025. There are two fundamental pillars inherent in this framework. The first is to reduce the country’s reliance on foreign links within its supply chains – a goal that has possibly germinated in the aftermath of trade wars. The second is to move up the value chain particularly as it relates to emerging technologies like electric vehicles.
The Chinese government has launched a new energy vehicle (NEV) industry development plan which aims to bring NEV sales to 20% of all vehicle sales by 2025. China aspires that battery-electric vehicles dominate the market by 2035 and all public transport, eventually, also runs on electric power. The policy has, therefore, laid the groundwork for the industry to thrive. But for such audacious goals to become achievable, large amounts of investment will be needed in the sector.
Investments will not only be necessary to develop NEVs but will be required across the ecosystem supporting the sector. The ecosystem will include things like mining of raw materials such as nickel, the development of more efficient batteries, and a well distributed charging infrastructure. The good news is that such investments are underway already. Shanghai alone intends to add 100,000 to 200,000 public and private NEV charging points over the next three years.
A proliferation of NEV manufacturers is also underway in China with local companies making cars suited to the tastes and needs of the consumers. BYD Co Ltd is an excellent example of a company that has moved up the value chain from being a battery manufacturer to building commercial and private vehicles and becoming one the biggest electric carmakers in the world.
Consumers are responding well to this transition too. China’s NEV sales rose for a seventh consecutive month in January hitting a record high in monthly sales. China sold 179,000 NEVs in January – up 238.5% from a year ago1. A combination of improving charging infrastructure, reducing battery costs, and the increasing choice is, therefore, going to be crucial if China – just like any other country – is to achieve its NEV sales targets.
Traditional Chinese equity indices such as the CSI 300 Index offer a relatively modest exposure to the so-called ‘new economy’ sectors. This may change over time but for now, the dominance of financials and consumer staples is vividly pronounced. The S&P China 500 Index or the CSI 300 Index, may work very well for many investors seeking a pure beta exposure to China. But China’s growing share in thematic indices offers an alternative to those seeking a tech tilt.
For example, China wields a weight of around 29% in the WisdomTree Battery Solutions Index – meaningfully higher than the 20% weight for the US2. Companies represented include midstream applications like battery manufacturing and enablers in the charging infrastructure sector. China’s share in a relatively more downstream focused Stoxx Global Electric Vehicles and Driving Technology Index is currently around 4%3, but this may change with the country’s increased focus on moving up the value chain.
While the China tech story is likely to unfold in the years to come, it may start getting more attention from markets much sooner. Investors already have an array of options when it comes to gaining exposure to China. Pure beta plays are not the only option, thematic investing may also increasingly present itself as a viable alternative.
1 Argus Media as of 09 February 2021: https://www.argusmedia.com/en/news/2185170-chinas-january-ev-sales-hit-alltime-high.
2 WisdomTree as of 24 February 2021.
3 Stoxx factsheet as of 31 December 2020.
Originally Posted on February 25, 2021 – A Moment In Markets – China’s Electrification Opens New Frontiers For Investors
Jurisdictions in the European Economic Area (“EEA”): This website and its content has been provided by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Jurisdictions outside of the EEA: This website and its content has been provided by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
The price of any Shares or the value of an investment in ETPs may go up or down and an investor may not get back the amount invested. Past performance is not a reliable indicator of future performance. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.
Please click here for our full disclaimer.
Disclosure: WisdomTree Europe
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Please click here for our full disclaimer.
Jurisdictions in the European Economic Area (“EEA”): This content has been provided by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Jurisdictions outside of the EEA: This content has been provided by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from WisdomTree Europe and is being posted with permission from WisdomTree Europe. The views expressed in this material are solely those of the author and/or WisdomTree Europe and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.