In the past three months, the MSCI China index has been ousting the S&P 500, evoking optimism in China. This should translate to strength for China ETFs.
As mentioned, the MSCI China index is up about 14% compared to the S&P 500’s loss of about 1.4% within the last few months. That optimism is being fueled by China’s reopening after scaling back on COVID-19 lockdown restrictions.
“Recovery optimism has taken hold as investors see a clear path to the end of Covid-lockdowns, and their associated impact on the Chinese economy,” Investing.com reported. “While there may well be a surge in Covid cases following the ending of some restrictions – not to mention increased nationwide travel over the Chinese New Year holiday season – the rest of the world has already seen this playbook unfold; an initial uptick in cases being met with eventual herd immunity.”
2 China ETFs Options
Investors interested in gaining exposure to China can consider a pair of options from ETF provider KraneShares. One is the KraneShares CICC China Leaders 100 Ind ETF (KFYP), which tracks the CSI CICC Select 100 Index, which takes a smart beta approach to systematically invest in companies listed in mainland China.
The strategy that KFYP employs is based on China International Capital Corporation (CICC)’s latest research on China’s capital markets. This quantitative approach reflects CICC’s top-down and bottom-up research process, seeking to deliver the 100 leading companies in mainland China, offering broad exposure while also adding portfolio diversification to China via one ETF.
Another option for getting broad-based exposure is the KraneShares MSCI All China Index ETF (KALL). The fund tracks the MSCI China All Shares Index, a benchmark of companies that are based in and headquartered in China, as well as listed in mainland China, Hong Kong, and the U.S.
KFYP takes a more strategic approach to its holdings, relying on research from CICC to develop a more discerning screener for inclusion in the fund. KALL is more all-inclusive, essentially encompassing a wide range of companies for inclusion in the index — somewhat like China’s version of the S&P 500 — as such, you’ll see familiar names like Tencent Holdings and Alibaba, which comprise its top holdings.
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