KLIP Offers Income Play on China’s Growth | ETF Trends

The U.S. is facing down looming recession as aggressive monetary policy and bank sector stress weigh heavily on the economy. Meanwhile, Chinese economists recently upped their GDP expectations for the year, creating an opportunity for investors looking to capture income while investing in China’s growth companies through the KraneShares China Internet and Covered Call Strategy ETF (KLIP).

China’s government set GDP estimates around 5% for the year, a modest target according to many, but still one of the few countries forecast for growth above 3% this year, with global growth estimated at 2.9% according to the World Economic Outlook from the International Monetary Fund.

A survey of Chinese economists at the end of March conducted by Nikkei and Nikkei Quick News revealed expectations of 5.4% GDP growth in 2023, an upward revision from their previous 4.7% forecast in December.

China continues to rebound and the recent announcements and breaking apart of major technology companies into different divisions has been met largely with confidence from Chinese markets. Domestic consumer confidence continues to recover from the long shadow cast by China’s COVID-19 policies, and the Chinese government continues to issue supportive policies for consumers and markets.

“China’s economy continues to rebound incrementally, which we anticipate will occur across the year,” said Brendan Ahern, CIO of KraneShares, in the China Last Night blog.

The latest beneficiaries of changing policies have been IPOs, with 10 new companies launched today in Mainland China, including Shenzhen CECport Technologies which rose 221% in trading. Technology remains the growthiest sector of the Chinese economy and stands to benefit from a recovering economy and rebounding consumers.

Income Opportunities in China’s Growth With KLIP

The KraneShares China Internet and Covered Call Strategy ETF (KLIP) seeks to provide monthly income through its strategy that writes options on the KraneShares CSI China Internet ETF (KWEB), a fund that invests in China’s largest growth companies within its technology sector, historically a more volatile sector than the U.S. tech sector counterpart.

KLIP writes/sells covered calls on KWEB and because of the increased volatility, has the potential to offer higher yield than investing in tech in the U.S. or other technology sectors globally. A covered call entails holding the underlying security while writing calls on that security, earning a premium from selling the covered call that can be utilized to generate income for the fund.

KLIP is benchmarked to the CSI Overseas China Internet Index which tracks publicly traded Chinese-based internet companies that are traded publicly. KLIP can be used alongside KWEB in a portfolio to capture China’s growth in the internet sector while also benefiting from any volatility in the sector while generating income.

KLIP has an expense ratio of 0.95%.

For more news, information, and analysis, visit the China Insights Channel.