China is the world's second-largest economy behind the US. And as recent data from the World Bank highlights, China will help fuel a large part of the globe's economic expansion:
“The global economy is set to expand 5.6% in 2021—its strongest post-recession pace in 80 years…. Growth in China remains solid but has moderated…. The United States and China are each expected to contribute over one-quarter of global growth in 2021.”
Thus, investors pay increasing attention to Chinese stocks, many of which have seen significant upward moves in the past 12 months. Most of those returns, however, have come in 2020 as opposed to 2021.
For instance, The SZSE Composite Index returned about 34% in the past year and hit a multi-year high in mid-February. But then it came under pressure. It is up about 1% year-to-date. Similarly, the Shanghai Composite Index returned 20% in the past 52 weeks, but is up only 1.5% in 2021.
We previously introduced several exchange-traded funds (ETFs) that might appeal to readers interested in the country’s growth prospects. Today, we extends that discussion to two other funds.
1. KraneShares MSCI China Clean Technology ETF
Current Price: $46.09
52-Week Range: $20.42 - $55.22
Expense Ratio: 0.79% per year
China is one of the largest energy markets worldwide and depends on coal for about half its primary energy. In September 2020, President Xi Jinping said:
“China will strengthen its 2030 climate target, peak emissions before 2030 and aim to achieve carbon neutrality before 2060.”
As a result, investors have started paying attention to the businesses that could help the country reach carbon neutrality in the coming decades. The KraneShares MSCI China Clean Technology ETF (NYSE:KGRN) invests in Chinese businesses that derive at least 50% of their revenues from environmentally beneficial products and services. The fund started trading in 2017, and has around $154 million in net assets.
KGRN, which has 47 holdings, seeks to track the performance of the MSCI China IMI Environment 10/40 Index. Five sub-themes make up the companies in the index: alternative energy, sustainable water, green building, pollution prevention and energy efficiency.
In terms of the sectoral breakdown, the consumer cyclicals sector has the biggest slice, with 24.80%; followed by industrials and energy sectors, with 24.16% and 17.57%, respectively. The fund’s top 10 holdings account for more than 55% of assets.
Chinese electric vehicle darlings Nio (NYSE:NIO), BYD (OTC:BYDDY), Xpeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and Xinyi Solar (HK:0968), which produces and sells solar glass products, are among the leading names in the fund.
In the past year, the ETF is up more than 122%, benefitting from investor appetite in clean energy sources. It hit a record high in February. Yet, so far in 2021, it is down about 1%. Buy-and-hold investors could regard any further decline in prices, especially toward the $43 level as an opportunity to go long KGRN.
2. Global X MSCI China Health Care ETF
Current Price: $30.80
52-Week Range: $21.81 - $34.29
Dividend Yield: 0.11%
Expense Ratio: 0.65% per year
We recently covered health care ETFs from the US. Now, we turn our attention to China. The Global X MSCI China Health Care ETF (NYSE:CHIH) seeks to invest in large- and mid-capitalization health-care businesses in the country. This small fund, which only has net assets of about $21 million, began trading in 2018.
CHIH has 89 holdings. It follows the MSCI China Health Care 10/50 Index. The top three sectors of the fund include biotechnology (32.39%), pharmaceuticals-major (26.98%) and pharmaceuticals-other (9.32%).
The 10 largest holdings constituting more than 46% of the fund. Among the leading names are WuXi Biologics (HK:2269), BeiGene (NASDAQ:BGNE), CSPC Pharmaceutical (OTC:CHJTF), Zai Lab (NASDAQ:ZLAB) and Innovent Biologics (HK:1801).
In the past 12 months, CHIH returned close to 38% and saw a record high in February. So far this year, it is up 15%. Interested readers should keep the fund on their shopping list. A potential decline toward the $28 level would offer a better margin of safety.