It’s no secret that China has widespread semiconductor ambitions and wants to reduce its dependence on imports of chips. Those goals are amplified at a time when the U.S. and some European nations are cracking down on domestic companies exporting semiconductors and related technology to China.
China’s efforts to bring more of its chip needs onshore are long-ranging. That could take some time to bear fruit. But there’s no denying Beijing’s commitment to this effort. That commitment could underscore potential for the KraneShares CICC China 5G & Semiconductor ETF (KFVG).
The fund turned three years old last November. It tracks the CICC China 5G and Semiconductor Leaders Index. That benchmark includes semiconductor and chip equipment manufacturers as well as makers of electrical components. That makes KFVG a diverse play on China’s rising domestic chip industry.
Why China Semiconductor ETF KFVG Is Relevant Now
While KFVG isn’t home to the familiar, glamorous names investors are accustomed to with domestically focused chip ETFs, the exchange traded fund’s long-term potential is something to consider. For example, Barclays recently noted China could double its domestic semiconductor output over the next five to seven years. That could bring with it upside for some KFVG member firms.
“Local players are still underappreciated,” Barclays analysts including Joseph Zhou and Simon Coles wrote in a recent report to clients. “There are materially more local semiconductor manufacturers and fabs in China than suggested by mainstream industry sources.”
China is home to 48 chip fabrication plants, one of the highest totals in the world. That figure could expand in the coming years as the country grapples with tech trade wars with the U.S. More domestic production could be a boon for KFVG holdings.
Also of note to investors considering KFVG is the fact that China is making near-term strides to bolster chip production. Those efforts could benefit KFVG at a time when global investors are looking for reasons to be confident about lagging Chinese equities.
“China is working toward technological self-sufficiency, something that’s become more difficult after the US and some of its allies restricted what tech companies were allowed to sell into the Asian country. Chinese firms have accelerated purchases of vital chipmaking tools to support the ramp-up and to build supplies ahead of new bans,” according to Bloomberg.
While there’s obvious reasons to evaluate KFVG’s chip exposure, market participants shouldn’t overlook the 5G side of the ETF, as China is expected to account for 40% of global 5G use as soon as next year.
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