Over the past several weeks, China stocks and ETFs have been surprisingly sturdy as the coronavirus appears to be contained there at least for. With many investors bracing for weak data out of the world’s second-largest economy in the weeks and months ahead, some are looking to get defensive with Chinese stocks.
The KraneShares MSCI All China Health Care Indes ETF (KURE) has been one of the steadier China ETFs in recent weeks and is now flirting with a year-to-date gain of almost 10% while the S&P 500 is lower by roughly 15%.
KURE invests in a variety of publicly traded shares of Chinese issuers, including A-Shares, B-Shares, H-Shares, P-Chips, and Red Chips – the portfolio essentially includes companies listed on Mainland China, Hong Kong, and the U.S. Furthermore, the Chinese health care companies must be classified under the Global Industry Classification Standard. The index may also include small-, mid- and large-cap companies.
Predictably, KURE has benefited from the coronavirus outbreak as some market observers speculate one or more of the fund’s holdings could put an end to the virus, but there’s more to the KURE story.
“China has historically underinvested in healthcare, but it is reasonable to expect an upgrade to its healthcare spending plans following this public health crisis,” said KraneShares in a report. “In recent years, there has been an increased focus on expanding the number of China’s drug development facilities, an effort that has established China as one of the world’s top outsourcing destinations for biomanufacturing second only to the US. We expect further growth as companies within China’s pharmaceutical sector continue to broaden their biomanufacturing footprint and accelerate their own drug development capabilities.”
China is taking other steps to improve prevention and treatment and those trends could benefit KURE components going forward.
“This outbreak may be a strong catalyst for growth, particularly for companies involved in healthcare IT, pharmaceuticals, and traditional Chinese medicine, which have had an outsized role in combating the virus,” according to KraneShares.
The Chinese health care industry may be a growth opportunity, especially given China’s large population. The health industry in China is also far less developed than those in Western countries, so the emerging Asian country will have to invest and expand its health care facilities and infrastructure to meet the growing demand from a large population.
“Healthcare in China has room for growth as it continues to develop. Although China has historically underinvested in healthcare, we believe that this public health crisis will prompt an upgrading to its healthcare spending plans,” according to KraneShares. “Moreover, China is already leading in the adoption of digital healthcare technology. Healthcare IT platforms have gained a considerable number of new users in just the past few weeks as people delay hospital visits to avoid coronavirus exposure.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.