KraneShares Bosera MSCI China A 50 Connect Index ETF

KBA

Market cap $247M

Despite mounting macro headwinds at the start of the year, Chinese equities have continued to deliver positive performance. While near-term flows can provide further upside, the durability for the equity rally will hinge on policy choices ahead.

Among APAC equity markets, Australia has a higher beta to oil prices while India, Indonesia and Thailand have lower betas. Domestic political uncertainties have been one main reason for the decoupling trend seen in Indonesia and Thailand.

China plans to curb low-price competition and phase out outdated industrial capacity, targeting sectors like EVs, solar, and e-commerce. Reducing overcapacity could boost Chinese companies' profitability and attract more domestic and foreign investment into Mainland equities. Effective action on overcapacity may ease US-China trade tensions, potentially serving as a win-win in ongoing negotiations.

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Sentiment remains fragile in China and Hong Kong stock market even China services activities have improved in December. Weak market breadth and a persistent bearish trend of the Chinese yuan since November has added to more woes to the Hang Seng Index.

Statements made by China's Politburo after mainland market closures mark a tonal shift in policy mandates from the government. The statements lifted the Hong Kong market and reflect missed opportunities for investors currently underweight China.

China markets responded favorably to November's purchasing managers indexes gains alongside positive real estate and auto sales for the month. Investors currently underweight to the country may miss opportunities within domestic markets as policy support continues.

Xiabing Su, cultural analyst at KraneShares, interviewed a variety of Chinese investors last month when visiting a brokerage firm in Lanzhou, China. While investors expressed a range of opinions regarding market outlooks, all demonstrated a depth of knowledge about the government's policy supports of markets.

China's stimulus plan head lead to big fund flows in ETFs. The trend towards private asset ETFs continues to gain steam.

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.