China’s market rally cooled recently as markets worked to process significantly overbought positions. However, KraneShares believes there’s still a longer runway for equities, particularly mainland stocks, making the outperforming KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA ) worth consideration.
“We believe China’s equity markets could continue to trade on policy indications,” KraneShares noted in a recent white paper. Importantly, “onshore and offshore investors often interpret policy differently.”
Such a divergence occurred mid-month in the wake of the Ministry of Finance’s press conference that lifted A-shares (mainland stocks) while offshore stocks sold off the next day. With the impending National People’s Congress, mainland markets could experience greater lift than offshore counterparts.
“While offshore listings benefit from downstream policy impacts, onshore listings are direct beneficiaries of stimulus and fiscal spending,” explained KraneShares. International investors lacking exposure to the A-shares market may miss out on a significant portion of China’s ongoing policy-driven market rally.
Capture the Rising Tide Potential in China’s Policy Shift
KBA invests in Chinese A shares within mainland China across multiple sectors. Specifically, the fund seeks to track the MSCI China A 50 Connect Index, an index comprised of 50 large-cap stocks from the Shanghai and Shenzhen mainland markets.
See also: A History of KBA and KraneShares With Brendan Ahern
These stocks offer liquidity and are those most sought after by institutional investors and China’s sovereign wealth fund, according to KraneShares. They’re listed on the Stock Connect, giving international investors access to mainland markets. The index also offers risk management through futures contracts for eligible A shares listed on the Stock Connect.
The MSCI China A 50 Connect Index utilizes a balanced sector weight methodology to give exposure to the breadth of the China economy. It contains many of China’s behemoths, including Contemporary Amperex Technology (CATL), the largest battery manufacturer globally. Other companies within the index include BYD, the world’s biggest EV manufacturer, and Kwiechow Moutai, one of the most popular alcohol companies in China.
“We believe this concentrated approach, focusing on the large cap stocks favored by Mainland investors and sovereign wealth funds, has led to the outperformance of the MSCI China A 50 Connect Index over the CSI 300 Index so far this year,” KraneShares wrote.
The CSI 300 Index is market-cap weighted and tracks the top 300 stocks on the Shanghai and Shenzhen Stock Exchanges.
KBA carries an expense ratio of 0.56% with fee waivers that expire on August 1, 2025.
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