There are few places where the U.S. and China are more opposed this year than economically, with the U.S. facing substantial economic slowing in 2023 while China pushes to rebound. It is creating a vacuum of opportunity for advisors and investors to step into, but that growth opportunity could be constrained to within China’s borders, something that the KraneShares Bosera MSCI China A Share ETF (KBA) is positioned to capture.
“China is at the tail-end of a significant downward earnings revision cycle, whereas the US is at the end of a cycle of upward revisions,” wrote KraneShares in a recent 2023 outlook paper.
China entered the year with a strong commitment to stability in growth, prices, and employment, and has announced a host of monetary policy measures to support its citizens. Even more conservative estimates put China’s GDP growth this year around 4%, with policy support providing a potential foundation for the economy to springboard from.
Growth is anticipated to be more constrained in the first half of 2023 as China continues to work through the COVID-19 surge in the country and provide support for its beleaguered real estate sector. As the COVID surge dwindles and policy supports go into effect, however, China is anticipated to have above-average growth in the second half.
“According to estimates compiled by Bloomberg, Chinese equities are expected to grow 17% in 2023, which is superior to forecasts for most other major global equity markets except for India. They also have one of the lowest valuations and investor positioning,” KraneShares wrote.
Declining global demand will play a role in decreased exports, but China’s infrastructure and manufacturing sectors should continue to provide growth within the country, particularly in the first half, as consumer demand recovers from multi-year lows.
Capturing the Rebound Within China With KBA
China is poised for strong recovery potential but many of the benefits could remain within China’s borders, a notoriously challenging place for foreign investors to gain access to.
“China will deliver a powerful economic recovery, but the growth spillover to the rest of the world will be much more muted in this cycle because of the nature of the economic rebound,” Frederic Neumann, chief Asia economist at HSBC, told WSJ.
The KraneShares Bosera MSCI China A Share ETF (KBA) invests in Chinese A shares within Mainland China across multiple sectors — specifically those from the MSCI China A 50 Connect Index.
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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