When it comes to combatting climate change, clean technology innovation, and renewable energy adoption, China isn’t perfect. After all, the world’s second-largest economy is the biggest consumer of coal.
On the other hand, China generates more power from solar energy than every other country in the world combined, signaling the country is committed to renewable energy. With that, there are notable investment implications that could be of note to market participants considering exchange traded funds such as the KraneShares MSCI China Clean Technology ETF (KGRN).
KGRN, which follows the MSCI China IMI Environment 10/40 Index, turns six years old next month and its relevance is increasing with age. Additionally, the ETF provides investors with an avenue for accessing Chinese equities with significant long-term growth potential and ample government support.
Data from China Highlights KGRN Allure
As noted by KraneShares, KGRN’s underlying index addresses the following themes: Alternative Energy, Sustainable Water, Green Building, Pollution Prevention, and Energy Efficiency. That diversification could be appealing to investors looking to tap into Beijing’s well-fund, broad-based approach to renewable energy.
Importantly, data confirm those efforts are already bearing fruit as the percentage of Shanghai-listed companies generating revenue from renewable energy pursuits is significantly higher than that found among S&P 500 member firms.
“Companies that make up the S&P 500 produce just 3.4% of their revenue from clean-energy sources, which is roughly half what companies on the Shanghai Composite Index earn,” reported Tim Quinson for Bloomberg.
In dollar terms, Shanghai-listed firms generated $707 billion in renewable energy-related revenue last year. That’s slightly more than the U.S., Germany and France combined.
“Chinese companies such as solar leaders LONGi Green Energy Technology Co. and Tongwei Co. are benefiting from the nation’s dominant position in the clean energy supply chain. In fact, the largest number of clean energy equity investment opportunities are in the Asia-Pacific region,” according to Bloomberg.
The above is pertinent to investors considering KRGN because LONGi Green Energy Technology is the ETF’s tenth-largest holding, commanding a weight of 3.13%.
Further underscoring long-term potential with KGRN is favorable geography. The Asia-Pacific region is home to the largest concentration of companies generating significant portions of sales from green energy. Some of those firms could become clients of KGRN holdings. Additionally, the regional is viewed as the most potential-laden when it comes to longer-ranging renewable energy investments, indicating KRGN could be worth considering by patient, tactical investors.
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