China is starting to crack down on inflation, which should help bond prices and exchange traded funds (ETFs) like the KraneShares Bloomberg Barclays China Bond Inclusion Index ETF (KBND).

China is already undertaking measures to control inflation, but progress thus far has been minimal. Per a Eurasia Review report, “on June 9, the National Bureau of Statistics (NBS) reported that the consumer price index (CPI) for May rose 1.3 percent from a year earlier, quickening from the 0.9-percent pace the month before.”

“The increase was a sign that the government has had only partial success in keeping the surge in commodity prices from spilling over from production into the consumer market,” the report added.

Nonetheless, successes in fighting inflation come as a benefit to bond prices. In the meantime, China can still offer U.S. bond portfolios global diversification and attractive yields.

KBND seeks to provide investment results that, before fees and expenses, correspond to the price and yield performance of the Bloomberg Barclays China Inclusion Focused Bond Index. The fund will invest at least 80% of its total assets in components of the underlying index or instruments that have economic characteristics similar to securities included in the underlying index.

The underlying index seeks to track the performance of Chinese onshore renminbi-denominated fixed income market. Features of KBND, per the KraneShares website:

  1. Invests in treasuries (i.e. government bonds) and high-quality corporate bonds and attempts to provide attractive yields relative to other government and investment grade bond markets with a monthly distribution.
  2. KBND offers access to the securities included in Bloomberg Barclays broad fixed income indexes and investment opportunities within the second largest bond market in the world.
  3. For investors seeking diversification within their global bond portfolios, KBND offers low correlations to other major bond markets.

KBND Chart

Is Growth Slowing Down in China?

Some positive news for China’s price control goals is the recent slowdown in growth. Like the U.S., China is having to deal with how inflation could pump the brakes on its economic recovery.

“Industrial output in May rose 8.8 percent from a year earlier, edging down for the third month in a row,” the report said. “Retail sales advanced 12.4 percent, missing a consensus analysts’ forecast, CNBC reported.”

“Inflation pressures may pose a challenge for China’s full economic recovery this year,” the report added. “The International Monetary Fund has forecast growth of 8.4 percent while the government has set a more conservative target of ‘above 6 percent.'”

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