China’s Strong PMI Reflects Expansion and Recovery: 2 ETFs to Capture

The February PMI for China surprised to the upside, expanding at the fastest pace in over a decade as production swung into high gear in the wake of lifting COVID-19 restrictions. There is strong opportunity to capture the predicted recovery and growth of the Chinese economy this year and a number of ways to play the potential, but two ETFs that are currently well positioned are the KraneShares CSI China Internet ETF (KWEB) and the KraneShares Bosera MSCI China A Share ETF (KBA).

China’s “official” February manufacturing PMI, measured by the National Bureau of Statistics, came in at 52.6 on expectations of 50.6. When measuring PMI indicators, anything above 50 reflects expansion and anything below 50 reflects contraction. It’s the highest PMI reading since April 2012 and a significant month-over-month growth from January’s 50.1.

The private sector production reading, the Caixin manufacturing PMI conducted by IHS Markit that measures small and medium companies, also smashed expectations, reporting in at 51.6 for February on expectations of 50.7.

The release of the PMI data on Tuesday sent markets ripping higher, though there were corrections that followed on Wednesday.

“The rebound in China’s manufacturing PMIs to 10-year highs in February was significant in letting investors know that the country has fully reopened and is reaping the benefits. Q4 internet earnings have been decent so far, beating estimates, but not as good as they could be in Q1 as reopening is taking full effect,” wrote Brendan Ahern, CIO of KraneShares, in the China Last Night blog.

2 Ways to Play China’s Economic Recovery Now

Large-caps have been a strong beneficiary so far of China’s reopening, and the KraneShares CSI China Internet ETF (KWEB) offers exposure to some of China’s growthiest large-cap companies. 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. 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 and a population on the move once more.

There has been marked difference between how foreign investors feel about China (expressed through the Hong Kong market) and how domestic investors within mainland China (expressed through the Shenzhen and Shanghai markets) feel in the last two years. The KraneShares Bosera MSCI China A Share ETF (KBA) invests in Chinese A shares within Mainland China across multiple sectors — specifically those from the MSCI China A 50 Connect Index.

This fund seeks to capture 50 large-cap companies that have the most liquidity and are listed on the Stock Connect, while also offering risk management through the futures contracts for eligible A shares listed on the Stock Connect. The index utilizes a balanced sector weight methodology to give exposure to the breadth of the Chinese economy.

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