China's Semiconductor Self-Reliance Should Boost This ETF

As Western sanctions crimp China’s ability get access to certain technologies unavailable domestically, the second largest economy is looking inward and emphasizing self-reliance by boosting its own semiconductor industry. That, in effect, should open growth opportunities for investors.

The emphasis on bolstering its own semiconductor technology is translating into increased revenue for chip equipment manufacturers. This should also help alleviate China’s growth issues as it works through an economic slump stemming from a real estate development crisis the last few years.

“Revenue from China’s top chip equipment makers surged in the first half of the year, research released Thursday showed, as Beijing continues to aim for self-reliance for its semiconductor industry,” a CNBC report noted, adding that the “top 10 domestic equipment manufacturers logged revenue of around 16.2 billion Chinese yuan ($2.2 billion) in the first half of the year, up 39% year-on-year, according to Shanghai-based CINNO Research.”

As the world becomes more reliant on technology, the top two economies are looking to win that digital battle. Semiconductors play a crucial role as advanced technology will require more processing power, especially when it comes to advanced capabilities like artificial intelligence and other applications.

“Semiconductors — critical components that go into everything from smartphones to satellites — have been caught up in the broader technology battle between the U.S. and China,” the report added. “Washington has sought to use export restrictions to cut off Beijing from key semiconductor equipment and technologies.”

Singularized China ETF Exposure to Semiconductors

To take advantage of the tremendous growth opportunity that exists in the Chinese semiconductor industry, individual stocks are an option, but there’s a single exchange traded fund (ETF) that can capture it all and then some: the KraneShares CICC China 5G & Semiconductor ETF (KFVG). As its fund name explicitly states, there is also a focus on 5G.

Major breakthroughs in 5G technology can provide additional growth exposure for investors alongside semiconductors, as improved chip technology can also help enhance 5G communications. As such, investors get the duality of the growth opportunities both the 5G and semiconductor industries.

Per its baseline fund description, KFVG seeks to measure the performance of the CICC China 5G and Semiconductor Leaders Index, which is designed to track the performance of companies engaged in the 5G and semiconductor-related businesses.  This includes 5G equipment, semiconductors, electronic components, and big data centers.

Salient features inherent in KFVG:

  • Access to China’s 5G and semiconductor companies that offer a potential source of uncorrelated, long-term growth.
  • Exposure to Chinese technology companies listed in Mainland China, Hong Kong, and the United States.
  • Tracks an index developed by China International Capital Corporation (CICC) Research. CICC is a leading publicly traded Chinese financial services company with expertise in research, asset management, investment banking, private equity, and wealth management. In 2019, the CICC Research Team ranked No. 1 in Institutional Investor’s All-China Research Category for the eighth year in a row.

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