As artificial intelligence enthusiasm continues, advisors and investors keep their attention turned towards the technology sector in 2025. However, most investors carry a notable underweight to a compelling class of internet firms this year.
2024 brought about a significant policy shift within China, as the government took proactive stimulus measures to bolster the economy and consumers. KraneShares argues that a long history of being fiscally conservative leaves the government with an equally long runway for ongoing stimulus measures in 2025. China’s internet firms appear to be favorably positioned in 2025 in such an environment.
From an easing perspective, KraneShares notes in a 2025 China outlook that China currently sits at a debt-to-GDP ratio of 62%. It leaves China’s government with a lot of room to continue stimulus and easing measures. For comparison, the U.S. has a 122% debt-to-GDP ratio, and Japan has a 255% ratio.
Should China continue to bolster its economy and encourage consumer recovery, internet companies would likely be the first — and arguably largest — equity beneficiary.
“Internet companies have become the transmission engines of China’s economy,” KraneShares wrote. “This means they are likely to benefit from stimulus policies first, especially policies around consumption.”
What’s more, ongoing stimulus and government support could increase the strength of fundamentals in Chinese markets. Optimism for 2025 and ongoing recovery resulted in Chinese internet companies entering the year with some of the most elevated expected earnings within equities.
Image source: KraneShares
“In China’s internet sector, free cash flow yield, buybacks, and dividends have stepped up significantly,” noted KraneShares. “We believe this is likely to continue into 2025, making China’s internet large caps potentially more attractive than their US counterparts.”
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2 Different Approaches to China Internet Investing
When tech investing in 2025, valuations alone make China internet firms worth consideration. As of the beginning of December, the P/E ratio of U.S. tech companies averaged near 35, according to KraneShares. Meanwhile China internet companies — the largest growth companies within China — carried a P/E ratio near 17. This creates significant opportunity for investors.
The KraneShares CSI China Internet ETF (KWEB) measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors. It seeks to track the CSI Overseas China Internet Index, providing exposure to the China equivalents of Google, Facebook, Amazon, and eBay. It trades in securities on the Nasdaq Stock Market, the Hong Kong Stock Exchange, or the New York Stock Exchange. KWEB carries an expense ratio of 0.70%.
For investors seeking the heightened volatility inherent to China’s tech companies, the KraneShares China Internet and Covered Call Strategy ETF (KLIP) is worth consideration. KLIP seeks to provide monthly income through its strategy of writing options on KWEB. The fund invests in China’s largest growth companies within its technology sector, historically a more volatile sector than the U.S. tech sector counterpart.
The fund writes covered calls on KWEB and, because of the increased volatility, can potentially offer a 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. This earns a premium from selling the covered call that can generate income for the fund. KLIP carries an expense ratio of 0.93%.
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