In the latest step by China’s government to address a flagging economy, the People’s Bank of China has announced a cut to a key interest rate. That cut surprised investors and adds approximately $25 billion to banks in China, potentially boosting the outlook for tech there. That could add to an overall case for tech diversification in the country via an ETF like the KraneShares CSI China internet ETF (KWEB ).
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The PBOC’s decision comes following months of discussion and action about potential stimulus from China’s government. While the economy looks set for 5% growth this year, that would fail to match the nation’s historically higher averages. Despite media headlines warding Western investors off from the nation’s economy, debt issues may not impact the tech sector.
A China Internet ETF for Chinese Rate Cuts
Indeed, the tech sector offers potentially intriguing investment areas. Rate cuts could benefit tech in a manner that appeals to investors looking at diversification. That’s where a China internet ETF like KWEB could play a role.
The fund charges a 69 basis point fee. KWEB tracks the CSI Overseas China Internet index, looking for key tech players in China’s economy. The strategy holds names like Tencent (TCEHY), for example, in this case at a 10.35% weight. The strategy, which hit its tenth year of operation last year and sits at just under $5 billion, could appeal as a source of diversification.
That’s because U.S. tech names remain a concern in terms of concentration risk. U.S. megacap tech names from this year’s so-called “Magnificent Seven” are likely overweighted in many U.S. portfolios. A China internet ETF that could benefit from its own rate cuts, then, may diversify U.S. investors away from that risk.
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