Emerging Markets

2 ETFs To Consider As Opportunity In China Beckons

I just finished a piece for Seeking Alpha that was published yesterday. In that article, I highlighted that opportunity may beckon in the China market, and suggested the iShares MSCI China ETF (MCHI) as a great tool with which to take advantage of such.

In this article, I’d like to expose you to a second ETF you may wish to consider. In my Seeking Alpha piece, I said that MCHI was not for the faint of heart, and that holds doubly true for my second offering as well. At the same time, it could open the door to even larger gains.

Say Hello To KWEB

This second ETF is the KraneShares CSI China Internet ETF (KWEB). Here is the stated goal of this particular ETF, as stated on its web page.

KWEB seeks to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors.

Put another way, KWEB seeks to track the Chinese equivalents of Google, Facebook, Twitter, eBay, Amazon and the like. Krane FundsAdvisors, LLC, the investment manager for KraneShares, is somewhat unique in that virtually its entire portfolio of ETFs focuses on China.

With an inception date of 7/31/2013, KWEB is not a new fund, but rather has an established track record. At .70%, its expense ratio is just slightly higher than MCHI’s .62%, not bad for a fund of this nature. According to its most recent fact sheet, as of 9/30/18, the fund has AUM of $1.834 billion and ETF.com shows it as having an average trading spread of .06%. Both of those numbers speak to solid size as well as liquidity.

Here is a quick look at KWEB’s sector breakdown as well as its Top 10 holdings.

KWEB_Statistics.png

Here are a couple more “fun facts” for you to consider:

  • Chinese retail web sales totaled US$1.14 trillion1 in 2017 (compared to US$453.5 billion3 in the United States), representing an increase of 32.2%.
  • China’s internet population reached 721 million people, a penetration of only 52.2%2. The U.S. internet population reached 287 million people, a penetration rate of 88.5%

I was surprised by that first number, having no idea of the scope of Chinese retail web sales. And that second data point implies that there is plenty of room for growth as China’s middle class continues to expand.

Finally, courtesy of Yahoo Finance, here’s a nice graphic depicting the comparative performance of KWEB and MCHI over the past year.

KWEB_OneYear

As can be seen, KWEB is more volatile overall than MCHI, and has also taken even more of a price hit over the past couple of months. But if you were to expand that graphic to cover the past 2 years, for example, you would see that KWEB tends to have more upside when things are good.

Final Thoughts

So there you have it. Two ETFs with which to explore the opportunities that may beckon in the China market. MCHI is an extremely solid overall choice, but KWEB may offer even greater gains.

Until next time, I wish you.

Happy investing!

 

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