BBetween the trade war between the United States and China and the onset of the Covid-19 pandemic, many companies have shifted their supply chains out of China and to neighboring countries, such as Vietnam and India.
Now, however, as the vaccine rollout continues and the epicenters of the pandemic shift, again causing supply chain disruptions, those same companies could return to China, according to Zhang Zhiwei, Chief Economist of Pinpoint Asset Management.
COVID-19 exacerbates existing trends
The flight from China had started before COVID arrived. The trade war between the United States and China has caused many companies, especially technology companies, to withdraw from Chinese soil.
Companies that had already left, as well as those planning to leave, could be forced to return, or face closed production lines as new variants of the disease continue to impact countries in Asia. from South.
After a severe shortage of superconductors, further disruptions in production could have far-reaching effects.
“Before the pandemic, we saw factories leaving China – Samsung, Foxconn these big companies – setting up factories in Vietnam, India,” Zhiwei said.
Big companies like Foxconn, a Taiwanese electronics contract maker and main supplier to Apple, have been forced to shut down factories and facilities in India and Vietnam.
“This could put off the offshoring of supply chains for a while. The main problem here is that international travel is suspended, so multinational companies cannot send their staff to India and Vietnam to set up new factories ”. Zhiwei mentionned.
China’s manufacturing sector could accelerate to meet unmet demand and fill supply chain gaps, believes Zhiwei, but that largely depends on how long Covid-19 will continue to impact India and Vietnam.
As it stands, Chinese export growth ranges between 20% and 40% per month, a figure that could decline in the second half of the year if factories reopen in India and Vietnam.
However, if these facilities remain closed for a long time, “we could see this kind of export growth of 20%, 30% (in China) continue next year,” said Zhiwei.
A surge in Chinese tech manufacturing could lead to positive growth in the tech sector, especially in the 5G and semiconductor industries.
the KraneShares CICC China 5G ETF and Semiconductor (KFVG) tracks the performance of the CICC China 5G and Semiconductor Leaders index. KFVG offers “access to Chinese 5G and semiconductor companies that offer a potential source of uncorrelated and long-term growth and exposure to Chinese technology companies listed in Mainland China, Hong Kong and the United States”, according to the KraneShares website.
Technology makers make up a large part of KFVG’s portfolio. The ETF currently carries Foxconn to a weight of 6.81%, for example.
KFVG has an expense ratio of 0.065%.
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