Consumer internet and technology stocks were once among the most beloved assets in Chinese markets and, for that matter, in the broader emerging world. Beijing’s harsh regulatory crackdown in 2021 and growth equities the world over are falling out of favor ending those ebullient times. But that enthusiasm could be reborn, rewarding investors considering exchange traded funds such as the KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ).
KEMQ, which turned five years old last week, is China-heavy though not exclusively focused on stocks in the world’s second-largest economy.
KEMQ, which follows the Solactive Emerging Markets Consumer Technology Index, could try investors’ patience over the near term, but it stands to be a prime beneficiary as Beijing ultimately looks to do away with its zero-COVID policy.
“Since May, China has been fine-tuning its COVID containment measures, including reducing quarantine periods and responding with rapid, targeted lockdowns. A more effective booster campaign and effective vaccines are needed to allow China to exit its zero-COVID regime,” according to BNP Paribas. “We expect the medium-term policy direction to be more pro-growth and pro-business. Beijing has announced measures to support the economy and has ammunition to do more.”
Adding to the allure of KEMQ’s as a quasi-China proxy is the long-running fact that Chinese stocks, including growth equities and KEMQ components, are discounted relative to U.S. equivalents. Plus, many of KEMQ’s Chinese holdings enjoy strong brand recognition and pricing power.
“Our Greater China equities team is sticking with selected high-quality growth companies that have resilient fundamentals amid the macroeconomic downturn,” added BNP Paribas. “We favour companies with strong pricing power and are seeking long-term investment opportunities in sectors best positioned to benefit from structural changes.”
Turning to KEMQ’s geographic exposures beyond China, there are myriad compelling consumer internet/technology opportunities in the developing world. India stands out as one and one with potentially less political risk than China. Additionally, some of these opportunities can be had
“On the back of the reopening tailwind, real imports are strongest in India and ASEAN. Moreover, healthier balance sheets and rising corporate confidence in India bode well for business investment,” noted BNP Paribas. “Asian and EM equities have now priced in much of the weaker global conditions. Current earnings per share (EPS) estimates for 2023 are above those for 2022. Modest valuations, light investor positioning, and good fundamentals are buffers against near-term volatility.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.