2 ETFs That Benefit From China’s Growth and Volatility

The International Monetary Fund has predicted that China will drive over a third of all global growth this year, raising their projected real GDP estimates for China this year in their latest Regional Economic Outlook. Two ETFs from KraneShares offer advisors and investors the opportunity to capture the major growth drivers in China while also harnessing the increased volatility of China’s growth companies for income.

IMF has raised their GDP estimates for China this year from 0.8% to 5.2%, and China and India combined are contributing to half of all growth globally this year.

Image source: IMF

“The main development has been the reopening of China, where surging consumption is boosting growth across the region despite weaker demand from the rest of the world,” IMF wrote in their recap of the most recent Regional Economic Outlook.

The growth of China is expected to slow in the coming years as the population ages and production slows, meaning the Chinese government will need to ramp up efforts to support economic growth and innovation.

“The region should prioritize structural reforms to boost long-term growth, including through innovation and digitalization, while accelerating the green energy transition,” IMF wrote.

Capture China’s Growth and Capitalize on Volatility

There are several ways to gain exposure to China’s continuing economic recovery this year, but the combination of two ETFs from KraneShares allows a unique opportunity to gain exposure to the growth giants in China while also taking advantage of the enhanced volatility the space can have.

The KraneShares CSI China Internet ETF (KWEB) tracks the CSI Overseas China Internet Index and measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors. The fund contains many of the tech giants that are likely to benefit from and drive economic recovery in China this year.

The fund includes companies that develop and market internet software and services, provide retail or commercial services via the internet, develop and market mobile software, and manufacture entertainment and educational software for home use.

KWEB has an expense ratio of 0.70%.

The KraneShares China Internet and Covered Call Strategy ETF (KLIP) seeks to provide monthly income through its strategy that writes options on KWEB and capitalizes on the historically increased volatility that China’s tech sector has over the U.S. tech sector.

KLIP writes/sells covered calls on KWEB and because of the increased volatility, has the potential to offer a higher yield than investing in tech in the U.S. or other technology sectors globally. A covered call entails holding the underlying security while writing calls on that security, earning a premium from selling the covered call that can be utilized to generate income for the fund.

KLIP is benchmarked to the CSI Overseas China Internet Index which tracks publicly traded Chinese-based internet companies that are traded publicly. KLIP can be used alongside KWEB in a portfolio to capture China’s growth in the internet sector while also benefiting from any volatility in the sector while generating income.

KLIP has an expense ratio of 0.95%.

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