Recent rule changes for Chinese markets have resulted in a surge in IPOs, including a number of technology companies. For advisors looking to capture rising technology stars in China through the STAR Market, the KraneShares SSE STAR Market 50 Index (KSTR) offers exposure to some of the largest companies listed in the technology-heavy index.
A suspension of stock movement limitations in the first five days of trading as well as several changes meant to encourage companies listing in Mainland China has led to an influx of IPOs recently.
“The new standards are not necessarily ‘looser,’ though streamline the IPO process, which should increase the number of IPOs,” wrote Brendan Ahern, CIO of KraneShares, on the China Last Night blog.
A major index that is likely to benefit from an increase in IPOs is the Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 Index which tracks the 50 largest companies by both liquidity and market cap on the SSE Science and Technology Innovation Board, otherwise known as the STAR Market.
Companies listed on the STAR Market that go on to also be included on the Shanghai and Hong Kong Stock Connect and the Shanghai Stock Exchange Composite Index are likely to experience larger flows and provide opportunities for investors looking to capture the next generation of growth companies in China.
Investing in China’s Future Technology Leaders With KSTR
The KraneShares SSE STAR Market 50 Index (KSTR) invests in the top 50 companies listed on the STAR Market. It is a newer, technology-heavy index, and advisors should invest for a long-term investment horizon when seeking to gain exposure due to the likelihood of higher volatility. KSTR is currently up 16.71% YTD and is trading above both its 50-day and 200-day Simple Moving Average, a strong buy signal for trend followers.
Standard A-share portfolios based on legacy Chinese economics invest in energy, industrials, financials, and materials, and therefore tend to have a bias toward more value. KSTR, however, is focused heavily on growth with a tilt toward technology.
The fund has a sector allocation of information technology at 62.07%, industrials at 12.57%, healthcare at 11.17%, materials at 9.2%%, and consumer discretionary has a 4.66% allocation as of 03/31/2023.
KSTR tracks the Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 Index, a benchmark of the 50 largest companies listed on the STAR Market. To be eligible for inclusion in the index, stocks must meet certain market capitalization and liquidity screens and have been trading for at least 11 days. The STAR Market is one of the largest global IPO markets since its inception in 2019 and many Chinese unicorns (private startup companies with a value greater than $1 billion) choose to launch through the STAR Market according to KraneShares.
KSTR has an expense ratio of 0.88%.
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