ETFs of all varieties hit certain milestones in their lifetimes, whether based on time or AUM. Those milestones provide key information to investors and advisors shopping around a given category. Whether indicating new liquidity or momentum or that a strategy has established a long enough track record, those milestones matter. With global markets turning their gaze on China this week, investors may want to check out the China A-Shares ETF KBA which just hit a new AUM threshold.
KBA, the KraneShares Bosera MSCI China A 50 Connect Index ETF, tracks the MSCI China A Index. It looks to offer investors exposure to China A shares, which had historically been limited to mainland Chinese citizens. A-shares use the Chinese renminbi (RMB) for their valuations, which tend to be higher given their direct exposure to domestic investors.
The recent politburo meeting underscored disappointing economic growth metrics in China, with media headlines clamoring for stimulus. That said, those headlines also may represent a local valley for China’s outlook. Outside of the possibility of stimulus and other policy supports, a China A-shares ETF can offer meaningful diversification away from an overvalued, top-heavy S&P 500, for example.
KBA could be one option to fill that role. The China A-shares ETF excludes small caps, weighting its holdings by market cap but adjusting sector weights to mirror its parent index. Critically, KBA just crossed $400 million in ETF AUM behind a $5.8 million net AUM spike due to price influence. Those and other factors have emerged just as the strategy has outperformed over the last month. KBA beat both its ETF Database Category and Factset Segment averages over the last month.
While other investors may be feeling some China skepticism right now, there are reasons for positivity. The country’s M2 supply of money continues to grow at a very healthy clip, contrary to the U.S. M2 supply which dipped this year. Meanwhile, should the pandemic scarring on the Chinese consumer ease, significant savings could flip into new investments. Charging 55 basis points (bps), KBA will hit its ten-year milestone next March and could be a strategy to watch entering the second half of 2023.
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