Market Overview

The Right Ways To Play A Rebound With China ETFs

The Right Ways To Play A Rebound With China ETFs

In the aftermath of the shocking U.S. presidential election results earlier this month, emerging markets equities and exchange-traded funds have slumped. That includes China ETFs, and President-elect Donald Trump's protectionist campaign trail rhetoric could be a reason why Chinese stocks are scuffling.

With China ETFs offering rebound potential, investors might do well to consider those funds holding stocks with robust earnings growth prospects, such as the KraneShares CSI China Internet ETF, KraneShares Trust (NASDAQ: KWEB).

Justification For KWEB

Fundamental data support KWEB's multiple. For example, China has 22 percent of the world's internet users, according to KraneShares data. That is more than double the amount found in the US and at the end of last year, China's e-commerce market was worth $590 billion, making the $324 billion U.S. e-commerce market seem paltry by comparison.

“Many investors get their exposure to China through exchange traded funds (ETFs) that track indexes. The stocks theses ETFs buy are determined by the index provider. For a long time, index providers limited their China investment universe to about 150 Chinese companies listed in Hong Kong, excluding approximately 3,000 Mainland-listed Chinese companies and dozens of US-listed Chinese companies from their indexes,” said KraneShares in a recent note.

A Different Approach: KBA

Investors looking for a play on mainland Chinese equities, also known as A-shares, can consider the KraneShares Bosera MSCI China A ETF, KraneShares Trust (NYSE: KBA). In what could be an encouraging sign, KBA is up more than 2 percent, topping traditional China ETFs that hold only those stocks trading in Hong Kong.

“Chinese A-Shares are a specific class of equity securities issued by Chinese companies and denominated in RMB. Under current Chinese regulations, foreign investors may access A-Shares if they are a designated foreign institutional investor or gained access through either the Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) programs,” according to ETF Trends.

A-Shares And Their Index Providers

Index providers' treatment of A-shares and some of the stocks held be KWEB remains another potential catalyst for China ETFs, such as KBA and KWEB.

“Last year, on December 1st, 2015, MSCI, a leading provider of indexes globally, moved to include 14 US-listed Chinese companies into their Global Standard Indexes. This week in advance of their December 1st, 2016 rebalance, MSCI announced they will add US-listed Sina and Weibo to these indexes as well, which will require MSCI benchmarked passive managers around the world to purchase these stocks at the close on November 30th,” added KraneShares.

Sina Corp (NASDAQ: SINA) and Weibo Corp (ADR) (NASDAQ: WB) are both KWEB holdings.


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