The U.S. and China are engaged in an ongoing trade spat, but that is not hindering the rapid growth of China’s Internet sector.
The KraneShares CSI China Internet ETF (NYSEArca: KWEB) is down 22.44% year-to-date, confirming that the king of China Internet exchange traded funds is following other emerging markets assets lower this year, but fundamental data paint a more positive picture. The gap between Chinese Internet stocks and their U.S. equivalents this year is stark and that could be a buying a opportunity for investors considering China.
“This is the largest price gap these two groups have experienced since 2010,” according to KraneShares. “Every day we read about trade tensions and China’s slowing GDP growth, but what has been overshadowed is the continued growth of China’s services sector, retail sales, and the expanding universe of publicly traded Chinese internet companies. We believe this is a great example of noise and sentiment creating investment opportunities.”
The jitters in the country’s markets could put China in a precarious position if trade wars persist with the United States, However, a white paper published by China last month revealed that the country can economically withstand the effects of a long, drawn-out trade war between the two economic superpowers, but it took extra measures for preparation when the Chinese central bank cut the amount of reserves held by banks.
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While China’s somewhat disappointing third-quarter number grabbed plenty of attention, some other, more encouraging data points out of the world’s second-largest economy went overlooked.
“China’s recent third-quarter economic statistics put year-over-year GDP growth at 6.5%, missing analyst expectations of 6.6%,” said KraneShares. “The media focused heavily on China’s underperforming GDP growth numbers rather than highlighting the performance of its services sector which experienced 7.7% growth compared to just 5.8% growth in the industrial sector.”
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The $1.71 billion KWEB holds 45 stocks and follows the CSI Overseas China Internet Index. Earlier this year, China’s Internet population topped 800 million, or about half the country’s population, but more than double the amount of the overall U.S. population.
“Despite trade tensions and slowing GDP growth, the China internet sector still grew and looks to continue to expand both within China and internationally. KWEB’s diversified approach allows investors to gain exposure to these exciting names and the growth of the China internet sector as a whole, typically with less volatility than holding a single company’s stock,” according to KraneShares.
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