2 ETFs to Ponder as China Shores Up Small Banks

Investor sentiment is on the upside now that China is looking to take additional measures to ramp up economic growth. This includes helping to shore up small banks to ensure the stability of its financial system.

While much of the focus has been fixing its real estate sector, the country realizes that its financial system must also be stable. Real estate transactions can’t move forward without financial support. In the case of China, this includes lending a helping hand to small banks.

“China has vowed to intensify its risk monitoring and bad asset disposal for stressed small banks, as the ongoing property crisis triggered by Evergrande and Country Garden poses a threat to financial stability,” a South China Morning Post article noted. It added that China’s state council mentioned that “Authorities will help city commercial banks and rural financial institutions dispose of bad assets and loans while also replenishing their capital through multiple channels.”

These stimulus measures aren’t meant to provide a short-term solution to a long-term issue. The country is making sure that this latest round of stimulus adds stability to small banks in the long-term horizon despite the costs.

“Beijing is striving to establish a high-quality inclusive financial system over the next five years to provide more funding for small market entities and agricultural sectors. Although their level of bad loans and fundraising costs are stubbornly high,” the report added.

Add China Exposure Amid Stimulus

As the country looks to reestablish strong economic growth via government stimulus measures, now could be an opportune time to add China exposure. KraneShares offers a suite of China-focused ETFs that can exhibit upside if the latest stimulus measures offer tangible results to positive economic growth.

One fund worth considering is the KraneShares Bosera MSCI China A Share ETF (KBA), which offers foreign investors access to the mainland markets and invests in Chinese A shares across multiple sectors, specifically those from the MSCI China A 50 Connect Index.

The fund seeks to capture 50 large-cap companies that have the most liquidity and are listed on the Stock Connect, while also offering risk management through the futures contracts for eligible A shares listed on the Stock Connect. The index uses a balanced sector weight methodology to give exposure to the breadth of the Chinese economy.

Another fund to consider is the KraneShares MSCI All China Index ETF (KALL). It tracks the MSCI China All Shares Index, which is a benchmark of companies that are based in and headquartered in the country as well as listed on the mainland, Hong Kong, and the U.S.

For more news, information, and analysis, visit the China Insights Channel.