Chinese Internet Languishes, but Other Sectors Thrive

While a regulatory crackdown has pommeled Chinese internet stocks, China country-specific exchange traded funds that track areas outside of these online names have come through with flying colors.

Over the past three months, the KraneShares Electric Vehicles and Future Mobility ETF (NYSE: KARS) has increased 22.2%, the KraneShares MSCI China Clean Technology Index ETF (KGRN) has advanced 25.6%, the KraneShares CICC China 5G & Semiconductor Index ETF (KFVG) rose 19.5%, and the broader KraneShares Bosera MSCI China A Share ETF (KBA) gained 4.1%. On the other hand, the KraneShares CSI China Internet ETF (KWEB) has declined 25.8%.

Chinese companies that track new-energy stocks, semiconductor makers, and electric vehicle companies have been outperforming in mainland China markets. Morgan Stanley analysts recently argued that while China’s new regulations have hit certain sectors, including financial-technology, online services, and private tutoring, Beijing has still been supporting industries like advanced manufacturing and renewable energy, the Wall Street Journal reports.

Some even believed that China is trying to steer capital and human resources away from these giant internet names toward areas that will better-allow the country to become more self-sufficient. That’s the view of Vikas Pershad, a portfolio manager at M&G Investments.

“They are trying to reach a new equilibrium because it seems capital flows were not in line with long-term, top-down priorities,” Pershad told the WSJ.

Anh Lu, a portfolio manager who oversees T. Rowe Price’s Asia ex-Japan equity strategy, also pointed out that companies that are helping China achieve its climate and environmental goals would also benefit from Beijing’s shift in direction.

“The U.S.-China tension has created more pressure to accelerate this process (of import substitution), and then as a result, some of these companies are growing probably faster than they would have otherwise,” Lu told the WSJ.

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