Chinese local news sources reported over the weekend that Hong Kong could be part of a “large-scale” pilot program for travel without quarantine requirements before the Lunar New Year on January 22, according to Bloomberg.
The news comes from mainland sources and would mean that Hong Kong residents would be able to travel to mainland China, a border that has been essentially closed since the onset of the pandemic, and that travel would not require quarantine. Currently, visitors to mainland China from Hong Kong must quarantine in hotels for five days.
Pre-pandemic the border was a highly trafficked one, with over 236 million passenger trips recorded for land crossings in 2019 between Hong Kong and mainland China. The reopening would be partial, but another big step towards boosting the economy on the mainland and in Hong Kong as well.
Goldman Sachs estimates that China’s reopening could boost Hong Kong’s GDP 7.6% next year as exports and travel expand again, lifting GDP estimates for many countries in the region as well.
The latest reports are part of the gradual rollback of strict pandemic regulations: Hong Kong announced Friday that individuals who test positive for COVID-19 would need to isolate for less time, as well as any close contacts, and incoming travelers will have to do two less rapid tests.
Industrial easing is already being seen too, with trucks traveling from Hong Kong now able to go directly to their mainland destinations instead of designated checkpoints.
Predictably, COVID cases are on the rise in Hong Kong, a trend seen in many countries when pandemic regulations were lifted, and are likely to rise in mainland China as well as quarantines and lockdowns are rolled back. The short-term impacts are a risk to watch for, but China is working to rollout vaccinations for its highest risk populations in the meantime.
Investing Across
For investors that are looking for exposure broadly to China’s sectors that could collectively experience growth in 2023 driven by reopening, investing in A shares offers an opportunity. The KraneShares Bosera MSCI China A Share ETF (KBA) invests in Chinese A shares across multiple sectors — specifically those from the MSCI China A 50 Connect Index.
KBA is currently trading above it’s 50-day Simple Moving Average and is trending towards its 200-day SMA, both signals that trend followers watch as indicators to buy.
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.
KBA carries an expense ratio of 0.56% with fee waivers that expire on August 1, 2023.
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