It was a big night for Asian equities as markets responded strongly to reductions in COVID-19 mandates countrywide in China. Markets in China were buoyed by the outperformance of travel-related stocks, as well as a strong earnings report from Trip.com, KraneShares wrote in their China Last Night blog.
China’s National Health Commission announced that foreign travelers coming into the country would only need to quarantine at their hotels for seven days, cutting in half the minimum amount of quarantine previously required. In addition, those within China that were in close contact with someone that tested positive for COVID-19 would only need to quarantine for seven days in a central facility and then three more days of home monitoring instead of the previous seven-day home quarantine.
Trip.com (TCOM in the US, HKEX: 9961 in China) also announced earnings that beat analyst expectations, despite the challenges that COVID-19 lockdowns provided in China. While the company reported net revenue that decreased by 12% quarter-over-quarter, the year-over-year net revenue remained “stable” according to the press release, and beat analyst expectations.
Even more telling is the rise in staycation travel that saw local bookings at hotels increasing 20% year-over-year, and a 270% increase YOY for airline bookings on the company’s global platforms as pandemic recovery prompts surges in travel.
“Though it was challenging for domestic travel due to the COVID-19 resurgence in China during the first quarter, our results demonstrated our resilience amidst a confluence of challenges and uncertainties,” said Jane Sun, CEO of Trip.com in the press release. “While we may continue to see short-term fluctuations, demand for travel is still strong and shows a bright outlook in the long-term.”
Ways to Harness the Travel Boom Happening in China
The KraneShares CICC China Consumer Leaders Index ETF (KBUY) benefits in an environment of increased liquidity due to the resultant increase in consumer spending. With the Chinese government currently engaged in monetary easing, and loosening COVID-19 restrictions, consumer spending and travel are set to increase.
KBUY tracks the CICC China Consumer Leaders Index, which invests in the publicly traded, Chinese-based companies that make up the consumer industries in China. These include apparel and clothing, hotels, restaurants, home appliances, food and beverage, and duty-free goods.
KBUY’s index selects the top 30 companies ranked by their long-term operating income and cash flow, market cap, long-term return on equity, and long-term gross profit. These companies are included in the index and weighted by free-float market cap, with no singular company representing more than 15% of the underlying index.
KBUY carries an expense ratio of 0.68%.
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. Trip.com is currently carried within the fund at a 3.18% holding in the U.S. ADR and 0.29% in the Hong Kong share class.
KWEB invests in 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 provides exposure to the Chinese internet equivalents of Google, Facebook, Amazon, eBay, and the like, all companies that benefit from a growing user base within China, as well as a growing middle class. The fund has worked to convert all possible share classes over to Hong Kong shares instead of ADRs to protect investors in case of Chinese delistings within U.S. markets.
The ETF has an annual expense ratio of 0.70% and has over $8.4 billion in AUM.
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