One of the biggest drags on China stocks has been weakness in the country’s property market. That includes a series of large-scale defaults. Those woes explain in large part why the MSCI China Index plunged 42.2% over the three years ending June 17.
Erasing those woes will take time. But China stocks have recently displayed some momentum. That could signal opportunity to get in on the early stages of a recovery with ETFs like the KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA). It could be a China ETF to remember. That’s because the fund performed significantly less poorly than the MSCI China Index over the past three years. In that time frame, it displayed noticeably less annualized volatility.
Interestingly, the near- to medium-term bull case for KBA could be supported by issues related to China’s expansive property market. Those points include increasing evidence that some professional investors have reconciled the state of affairs in China’s real estate market and don’t view significant improvements as needed to support higher equity prices in the country’s stock markets.
KBA Could Rebound Without Real Estate Help
KBA has traded slightly higher over the past three months, perhaps supporting the notion that Chinese real estate prices can remain low while stocks move higher.
“Chinese stocks do not need a turnaround in property prices to chalk up further gains despite an entrenched bearish consensus that says they do, according to a top market strategist who called the timing of the reopening rally in late 2022 and the 2015 stock-market meltdown,” reported Jiaxing Li for the South China Morning Post.
Over the course of April and May, China A-shares, some of which reside in KBA, and Hong Kong-listed stocks surged. Alone, that’s noteworthy, but even more so when considering there’s still lingering volatility in China’s property market.
“That happened despite the property market showing little sign of stabilising, with prices of new homes in 70 medium and large Chinese cities falling by the most in nearly 10 years as Beijing’s ambitious 300 billion yuan (US$41.3 billion) relending facility for excess housing inventory has yet to trickle through,” according to the Post.
One way of looking at the scenario is that market participants are separating China’s real estate woes from the country’s broader investment thesis. But it wouldn’t hurt ETFs such as KBA if much needed stability came to pass in the country’s real estate sector.
If that stability arrives, stocks, including KBA holdings, could benefit. That’s because many local retail investors remain leery of allocating to equities due to the aforementioned real estate issues.
For more news, information, and analysis, visit the China Insights Channel.