Investing in China continues to be a mixed bag of volatility, uncertainty for foreign investors, and concerns over geopolitical risk that have only heightened that in the last month. Now with Shanghai being literally split by a COVID-driven lockdown, the impact to investment funds across the KraneShares suite reflects the diversity of opinions of foreign investors towards China’s sectors and economy.
On March 14, China ordered lockdowns of several cities, including Shenzhen, as well as an entire province, affecting over 52.5 million people. Now, Shanghai has been cleaved in two by lockdowns, with its financial district impacted and portions of the city taking action with lockdown and mass testing until April 1, when remaining portions will do the same, reports the Financial Times.
The lockdowns come on the tail of the worst infection rates for COVID-19 since the beginning of the pandemic for China, with most cases presenting as asymptomatic. Sunday saw China reporting 5,134 asymptomatic cases, 3,450 of those from Shanghai.
The lockdown in Shanghai is the first time the financial hub of China has experienced this degree of restriction since the onset of the pandemic, and it will be a major test for China’s COVID-19 policy. Travel has been restricted, with roads, bridges, trains, and other means of travel largely suspended; residents wishing to leave the non-lockdown portions of the city must present a negative COVID test from within the previous 48 hours.
Investors Preferring Targeted Exposure to China
Flows into and out of a variety of KraneShares ETFs with different exposures to China reflect the diversity of sentiment regarding allocations into segments of the Chinese economy. Advisors and investors are showing a preference for targeted exposure to China within the KraneShares funds based on fund flows since the commencement of the lockdown on March 14.
The KraneShares Bosera MSCI China A Share ETF (KBA) offers exposure to China’s economy and the A-shares market — specifically, the MSCI China A Share Index. The ETF captures mid-cap and large-cap representation of Chinese equities listed on the Shenzhen and Shanghai Stock Exchanges, which have been historically closed to U.S. investors. KBA offers broad exposure to China and has seen overall outflows of $32.67 million since March 14–March 25.
Alternatively, funds such as the KraneShares MSCI All China Index ETF (KALL), which tracks the MSCI China All Shares Index, a benchmark of companies that are based in and headquartered in China and listed in Mainland China, Hong Kong, and the U.S., has been largely even in terms of inflows and outflows over the same time period.
On the opposite end, the KraneShares CSI China Internet ETF (KWEB) has experienced strong inflows overall. The fund offers exposure to some of the biggest companies within China’s internet sector and tracks the CSI Overseas China Internet Index, which measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors. Between March 14 and March 25, KWEB has seen net inflows of $582.76 million, with net inflows of $1.41 billion YTD.
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