Sentiment towards China stocks continues to diverge between domestic and foreign investors. U.S.-China American depositary receipts (ADRs) closed notably down in trading yesterday while Hong Kong stocks oscillated between slight losses and gains in trading today.
“There was a massive disparity between Hong Kong stocks today and US-China ADRs yesterday, which should lead to a bounce today,” Brendan Ahern, CIO of KraneShares, noted on the China Last Night blog.
A Tale of 2 Sentiments: U.S. & China Investors
The divergence in performance — and sentiment — between China domestic investors and foreign investors is a key reason KraneShares invests domestically when possible. Meituan, a shopping platform, gained 1.91% in trading today (overnight for U.S. investors) on the Hong Kong Exchange. Meanwhile Meituan’s non-sponsored ADR dropped 5.42% yesterday. Tencent’s Hong Kong stock slid 0.29% compared to the non-sponsored ADR’s 4.91% decline. Alibaba was down 0.9% compared to the ADR dropping 5.54%, and other names performed similarly.
The impending U.S. election likely has many U.S. investors sidelined when it comes to investing in China. This coupled with China’s economic challenges and general U.S.-China political tensions leave many investors sitting out for now. That’s according to Christopher Ailman, former CIO of the California State Teachers’ Retirement System (CalSTRS), in an interview with Reuters.
An increase in investment into China will likely follow a specific pipeline, Ahern noted. It will begin with renewed invests by China investors in China stocks (currently happening). This will then be followed by regional investors profit-taking in related investments such as India, Japan, or U.S. tech stocks to turn around and invest in China tech stocks. Last, larger institutional investors would move back into the space.
Looking ahead, Ahern remains optimistic about ongoing support for China markets from its regulatory bodies. “How do you let Shanghai and Shenzhen fall after telling local citizens to buy? I don’t think you can,” Ahern explained. “My recommendation: think about what’s coming down the road ahead through the windshield and not looking in the rear-view mirror.”
Invest in Domestic China Tech Stocks With KWEB
The KraneShares CSI China Internet ETF % etf KWEB %} measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors. It seeks to track the CSI Overseas China Internet Index, providing exposure to the China internet equivalents of Google, Facebook, Amazon, and eBay. It trades in securities on the Nasdaq Stock Market, the Hong Kong Stock Exchange, or the New York Stock Exchange.
In the last two years, the fund has worked to convert all possible share classes to Hong Kong shares instead of ADRs to protect investors from risk. Currently, 66.8% of KWEB is invested in Hong Kong and 31.4% in the U.S.. Another 1.8% is expected to convert to a Hong Kong relisting as of Oct. 15, 2024.
The ETF carries an expense ratio of 0.70%
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