Time for Chinese Tech ETFs?

Chinese tech equities rebounded in late April as the nation’s top political leaders planned on Friday to boost economic stimulus to promote growth. There could also be easing of the continued clampdown on tech firms. The Hang Seng Tech Index jumped 10% on Friday in Hong Kong, the maximum since Mar 16, led by names like Alibaba Group Holding Ltd. and JD.com Inc.

The Communist Party’s Politburo said authorities will unveil specific measures to support the healthy and normal development of the platform economy. “The most important message is a change of policy priority.

In the past few weeks, the top priority seemed to be containing Omicron outbreaks. Now, the goal is to balance the containment of outbreaks and economic growth. The government may fine-tune the ‘zero tolerance’ policy to allow some flexibility,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, wrote in a note, as quoted on CNBC.

Chinese tech ETFs have lost a lot in the past year due to the crackdown issue. The KraneShares CSI China Internet ETF KWEB has lost 60.4% past year. Invesco Golden Dragon China ETF PGJ has also lost about 57.4% past year.

Against this backdrop, any expected change in the government’s clampdown policy should favor Chinese tech ETFs. Investors will try to cash in on the cheaper valuation of the Chinese tech ETFs. The funds KWEB and PGJ are up 12.5% and 8.6% past week, respectively.

China is becoming a world leader in advanced Information Technology hardware production, focusing on 5G equipment and semiconductors. Since the launch of the Shanghai and Shenzhen Stock Connect programs in 2014 and 2016, Mainland investors now represent 8.5% of Hong Kong’s free-float market capitalization. This number is projected to increase significantly in the coming years, per KraneShares research.

Below we highlight a few Chinese ETFs that have gained massively last week and should be in watch for good gains.

ETFs in Focus

KraneShares CSI China Internet ETF KWEB – Up 12.5%

KTEC seeks to track the performance of the Hang Seng TECH Index, which captures the 30 largest companies in Hong Kong’s rapidly growing technology sector. The index provides exposure to innovative companies with strong research & development investment, high revenue growth, and themes such as cloud, E-Commerce, fintech and Internet. The index is free-float market-capitalization weighted with an 8% cap on individual constituent weighting. The fund charges 69 bps in fees.

KraneShares Hang Seng TECH Index ETF KTEC – Up 8.6%

The Hang Seng TECH Index captures the 30 largest companies rapidly growing in the technology sector in Hong Kong. The fund charges 69 bps in fees.

Invesco Golden Dragon China ETF PGJ – Up 8.6%

The NASDAQ Golden Dragon China Index currently comprises 38 U.S. exchange-listed stocks of companies that derive a majority of their revenues from the Peoples Republic of China. The fund charges 69 bps in fees.

Global X MSCI China Communication Services ETF CHIC – Up 7.1%

The MSCI China Communication Services 10/50 Index follows a rules-based methodology that is designed to select constituents of the…

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