"A once-in-a-lifetime opportunity"! U.S. asset management companies are actively launching China-themed ETFs to bet on market recovery

Finance Associated Press, February 21 (edited by Xiaoxiang) "The valuation gap between the Chinese and US stock markets has reached the largest ever, and we believe that now is the time to invest in China." ”

This is what Jonathan Krane, CEO of KraneShares, a New York-based fund, said in a recent interview. Despite the overall poor performance of the Chinese market since the beginning of the year, many US fund managers focusing on Chinese products, including Krane, are actively launching more ETF products based on China themes, and believe that the current valuation attractiveness of Chinese assets is difficult to ignore.

Chinese markets have risen for two consecutive sessions since they reopened on February 19 after the Chinese New Year holiday. If you count the pre-holiday period, the CSI 300 index has achieved six consecutive positives.

According to Morningstar, based on earnings over the past 12 months, China's CSI 300 is currently trading at around 12 times earnings, while the S&P 500 is trading at a whopping 24 times.

Many fund managers believe that China's large economy and still solid economic growth rate mean that it is still necessary for investors with a global eye to include it in their portfolios.

"A once-in-a-lifetime opportunity"

Krane, who has been focusing on the Chinese market for a long time, said, "This could be a once-in-a-lifetime opportunity to buy Chinese equities at valuations that have not been seen in a long time." ”

According to Jinrui Fund on its website, the company is a New York-based asset management company focused on providing innovative investment solutions to global investors in three key areas: China, climate change and low correlation assets.

Jinrui Fund believes that China and the United States are important partners in the world, and its ETF products will help global investors to understand the Chinese market and enhance their importance in asset allocation.

Since the beginning of 2021, Jinrui Fund has launched four new ETFs focused on the China theme. Among them, it launched two new Chinese ETFs on the New York Stock Exchange earlier this month: KPRO and KBUF.

At present, the largest China-themed ETF listed in the United States is KraneShares China Overseas Internet ETF (KWEB) under Jinrui Fund. The ETF was launched in 2013 and currently has over $5 billion in assets under management.

In January this year, Matthews Asia also launched a new actively managed China ETF, MCHS. The ETF seeks to mine alpha from small, little-known start-ups and invest in a growing innovative and dynamic economy that is being driven by growing domestic consumption.

Bryon Lake, Global Head of ETF Solutions at JPMorgan Asset Management, said: "Are we convinced that the world's second largest economy will play an important role in investors' portfolios?

J.P. Morgan Asset Management launched the J.P. Morgan Active China ETF (JCHI) in March 2023 and currently has approximately $9.2 million in assets under management.

According to Morningstar, a total of four China-themed ETFs issued in the United States were launched last year, two in 2022 and eight in 2021.

By the end of last year, there were a total of 48 China-themed ETFs issued in the United States. While this number has not changed much over the past few years, it is still 46 per cent higher than it was a decade ago.

Be the first to lay out

These China-focused asset managers hope that once the Chinese market rebounds, they will be able to maximize their profits by having a well-established fund with a proven track record.

Michael Barrer, Head of ETF Capital Markets at MingQ Asia, said, "There is a huge first-mover advantage in the ETF space for asset managers who are willing to try the challenge."

Mingji Asia has been investing in China for nearly 30 years and has launched more than a dozen Asia-specific ETFs since July 2022, including two China-specific ETFs and a number of other ETFs containing Chinese equities.

"That way, when the wind shifts, we have a ready-made product."

Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, said, "It makes a lot of sense to have or add a China-focused ETF to your portfolio, which will be a key component of investors looking to strategically position themselves to gain exposure to the world's second-largest economy." ”

Since launching a new ETF in the U.S. usually takes at least six months – a process that can be even longer for asset managers trying to venture into new territory. So, if there is a product with a proven track record that is ready to attract rapid inflows, then this small fund may be able to grow overnight.

Of course, these ETF issuers also say that launching new products and keeping existing ETFs viable in any environment requires careful planning.

(Finance Associated Press Xiaoxiang)