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Asset Management / Wealth Management
Why China internet ETFs may be the new trend among Hong Kong investors
In response to investor interest, fund managers have begun offering internet and technology-related exchange traded funds (ETFs)
Bayani S Cruz 19 Apr 2018

THE rise of listed Chinese internet companies, e-commerce firms, and fintechs is stoking interest among investors who may not necessarily have the interest or the inclination to invest directly in these companies.

In response to this investor interest, fund managers have begun offering internet and technology-related exchange traded funds (ETFs) which will allow investors to invest passively in the technology sector.

One such fund manager is the China International Capital Corporation Ltd (CICC) which has teamed up with the US-based Krane Funds Advisors LLC, known for its suite of China-focused ETFs branded as KraneShares, to launch a new Hong Kong-listed ETF with Chinese technology companies as their underlying stocks.

“CICC is seeing considerable client interest and demand for a China-focused internet ETF in the Asia market,” says Lin Ning, managing director of CICC Hong Kong Asset Management Ltd. Lin is also the manager of the CICC KraneShares CSI China Internet Index ETF.

The new fund, known as the “CICC KraneShares CSI China Internet Index ETF”, tracks the CSI Overseas China Internet Index, and matches the benchmark and strategy of another ETF known as the “KraneShares CSI China Internet ETF” (KWEB) which is listed on the New York Stock Exchange.

Launched in 2013, KWEB currently has US$1.7 billion in assets under management and is one of the top performers among US-listed China-focused ETFs. As of March 30 2018, it has an annualized performance of 21.94%, outperforming its index at 21.79% during the same period.

Originally designed for US investors, KWEB’s investment strategy focuses on accessing Chinese internet companies that provide similar services to Google, Facebook, Twitter, eBay, and Amazon. It gives exposure to companies benefitting from increasing domestic consumption by China's growing middle class, as well as exposure to Chinese internet companies listed in both the US and Hong Kong.

The newly-launched CICC KraneShares CSI China Internet Index ETF will have a similar strategy providing investors with exposure to Chinese internet companies that benefit from the increasing domestic consumption within China. Its key constituents include Tencent, Alibaba, Baidu, JD, and Weibo. The ETF will be available to trade on the Hong Kong Exchange in US dollar, Hong Kong dollar, and renminbi.

The new ETF will ride on the strong prospects for growth of technology and ETF companies in the Mainland as data indicate that China is one of the world leaders in terms of total internet users and e-commerce sales, with 721 million internet users, comprising 21.1% of the global internet population in 2016.

“With an internet penetration rate of just 52.2%, there is still considerable room for growth in China's internet sector. Additionally, China is the world leader in total e-commerce sales. In 2017, online sales in China reached US$1.14 trillion, or nearly 50% of the total US$2.3 trillion e-commerce sales worldwide,” Lin says.

KraneShares currently has 10 China-focused ETFs offering exposure to a number of strategies including One Belt One Road, environment, healthcare and consumer technology.

“Our suite of China-focused ETFs provides investors with solutions to capture China's importance as an essential element of a well-designed investment portfolio. We strive to provide innovative, first to market strategies that have been developed based on our strong partnerships and our deep knowledge of investing,” says Jonathan Krane, CEO of KraneShares.

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