Industry Updates

China internet ETFs shoot the lights out as sentiment shifts on ‘zero COVID’ policy

KWEB was Europe’s best-performing ETF in the week to 5 December

Jamie Gordon

a person in a mask and a blue hat holding a plant

Previously ailed China tech ETFs have surged over the past week as bets on the end of COVID-19 lockdowns in the country have flipped back to optimistic for the time being.  

During the week to 5 December, the $481m KraneShares CSI China Internet UCITS ETF (KWEB) led the charge with returns of 23.3%, followed by the $317m HSBC Hang Seng Tech UCITS ETF (HSTC) up 20.5% and the $28m UBS ETF Solactive China Technology UCITS ETF (CQQQ) rallying 17.3%. 

Further down the pack, the $48m Invesco MSCI China Technology All Shares Stock Connect UCITS ETF (MCHT) and $14m Xtrackers Harvest MSCI China Tech 100 UCITS ETF (XCTE) returned 15.1% and 14.7%, respectively, during the week. 

This impressive performance coincided with the loosening of restrictions in some Chinese cities.

For instance, Shanghai residents are no longer required to have COVID negative test results to enter outdoor venues such as parks, while Beijing and Shenzen will allow commuters on public transport without negative test results. 

The easing of ‘zero COVID’ measures also saw some investment banks turn bullish on Chinese equities for the first time in two years, with Goldman Sachs projecting double-digit returns for the MSCI China index and CSI 300 index in 2023, while Morgan Stanley upgraded Chinese equities to overweight.Dr Xiaolin Chen, managing director and head of international at KraneShares, the issuer of the KWEB ETF, told ETF Stream Chinese internet stocks benefit from positive economic sentiment given they are the “transmission engines for domestic consumption”, which is increasingly shifting online. 

“Over the weekend, China internet stocks were called the ‘best China reopening play’ due to the companies’ exposure to E-commerce and online travel booking along with ‘distressed’ valuations,” Chen added.

“The changing tide on the COVID policy and the offered support funding for Chinese real estate have provided the floor for market consolidation and stabilised investor sentiment towards the oversold Chinese internet stocks.” 

Looking ahead, Chen said today’s meeting of China’s Politburo will provide more clarity on Chinese economic policy ahead of the upcoming Central Economic Work Conference (CEWC). 

In mid-November, KWEB shot up 24.4% in a week following a lower-than-expected US core price inflation (CPI) reading and the Chinese Communist Party (CCP) announcing its 20-point COVID policy roll-back plan alongside 70 new online game licences to firms including Tencent and NetEase. 

However, this was followed by a sharp retracement as COVID cases in China hit 35,000 per day – the highest since the start of the pandemic – and fears lockdown measures would be reinstated sparked the largest protests in the country for 30 years. 

While such fears have yet to be realised, the fact European investors only allocated an additional $2.4m to KWEB during a week of bumper performance shows investors remain uncertain about the CCP’s COVID policy direction. 

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