years of stellar economic growth, the Chinese economy has been
going through a choppy phase for quite some time now. If we ignore
some occasional upbeat data from the last 1.5 years, one has to
question the health of the world's second largest economy.
The nation saw weakened growth for 2013 to hit 14-year lows. China
snapped a growth rate of 7.7%, which came a little above the market
expectation of 7.6% expansion. Notably, analysts' expectations for
growth were the slowest since 1999.
For 2014, the Chinese government has targeted 7.5% growth rate,
though this muted growth projection comes at the cost of new
reforms in China, as per the government, while recent export
figures haven't helped either (read:
China ETFs Tumble to Start 2014
Quite expectedly, this near-term gloomy outlook has punished most
of the China ETFs this year, as the vast majority are seeing modest
losses to start 2014. However, only one sector -- technology - has
held up pretty well in this downslide, with
Guggenheim China Technology ETF
Global X China Technology ETF
) returning just under 10.0%.
And beyond these, the China Internet ETF
CSI China Internet ETF
) has also edged past the other two tech ETFs gaining as much as
21% this year. This is why the space demands close attention,
especially given the broad weakness in other corners of the Chinese
What's Behind This Bullishness?
China is possibly the most important emerging market and has ample
room for expansion in the technology sector that will support its
journey toward becoming a developed nation. Internet penetration is
still low in China though people are embracing e-commerce
activities and PC sales are increasing, thus urging the nation to
go for further technological advancements.
Internet users to close out 2013 and 500 million mobile Internet
users. The Internet penetration rate in China also increased to
45.8% in 2013 from 42.1% in 2012. To leverage this growing demand
in the sector, China aims its technology sector to contribute
5% of GDP
now, 8% in 2015 and 15% by 2020.
Several market analysts believe that market capitalizations of
Chinese Internet companies are contesting hard with the largest
U.S. and global industry players (read:
Guide to China Technology ETFs
KWEB in Focus
This ETF is a rather new member in the China ETF space, having
forayed into the market on July 31 of 2013 and accumulated more
than $75.0 million in assets within such a short span. The ETF is
exposed to the companies doing business in the segments like
Internet software, home entertainment and educational software,
commercial or retail services primarily provided online, and
development of mobile Internet software or mobile Internet
All companies are based in China or derive at least 50% of their
revenues from Mainland China. About 60% of the 30-holdings
portfolio is invested in the top 10 stocks indicating that the ETF
carries significant company-specific concentration risk.
Tencent (10.2%), QIHOO 360 (8.8%) and Baidu (7.0%) form the top
three holdings. KWEB charges 68% of expense ratio a year (read:
KraneShares Launches China Internet ETF)
During the launch of this ETF, the issuer
that since 2000, Internet spending by urban Chinese has crept up
14% annually as the country's rural populace is still migrating to
cities thereby drawing more users to the Internet.
From the chart above, we can see that the Chinese Internet ETF has
breezed past the biggest China ETF
iShares FTSE China 25 Index Fund (
), as well as the
iShares MSCI China Index Fund (
SPDR S&P China ETF (
over the last three-month period.
While all three broad market ETFs buckled under pressure and lost
for the time frame, the sole Internet-focused ETF, KWEB, soared in
comparison. No 'hard landing', no "QE taper", no "debt issues" held
back the steadily growing Internet segment as well as the broader
tech space of China.
Of late, China has become a turning point (to a large extent) with
its domestic events either promoting stability to the broader
economy, or pushing other markets into a crisis situation. While we
believe that long-term outlook for the nation is still optimistic
as its government resorted to a slew of reformative measures, many
investors seemed wary of having a Chinese investment in their
portfolio in the near term.
Eventually, KWEB might open up an option to earn huge capital
appreciation out of Chinese stocks, and a way to tap into one of
the quickest growing sectors in the economic behemoth (read:
China ETFs Jump on Government Reform Afterglow
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GUGG-CHINA TEC (CQQQ): ETF Research Reports
ISHARS-CHINA LC (FXI): ETF Research Reports
KRANS-C CHN INT (KWEB): ETF Research Reports
GLBL-X NDQ CHIN (QQQC): ETF Research Reports
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