2023-12-06 10:03:34 ET
Summary
- The KraneShares Bosera MSCI China A 50 Connect Index ETF offers a unique platform for investing in Chinese A-share companies.
- KBA's portfolio includes top holdings in leading Chinese companies such as Kweichow Moutai, Contemporary Amperex Technology, and Wanhua Chemical Group.
- Pros of investing in KBA include diversification, potential for high returns, and risk management, while cons include geopolitical and regulatory risks associated with investing in China.
China is a hot mess, and a bottom is out there somewhere. Whenever things turnaround, the KraneShares Bosera MSCI China A 50 Connect Index ETF ( KBA ) may be one to consider. There will be an opportunity for bulls/contrarians on China to make some big gains. I just don't think it's here...yet.
KBA ETF offers a unique platform for investing in the largest and most liquid Chinese A-share companies. KBA is a benchmarked ETF that follows the MSCI China A 50 Connect Index. This index consists of 50 large-cap stocks listed in Shanghai and Shenzhen, available through Stock Connect. One of the key features of this index is its futures contracts for Stock Connect-eligible A-shares, which makes it a compelling risk management tool. This feature, coupled with KBA's focus on the largest and most liquid stocks, makes it an attractive option for international investors.
ETF Holdings
KBA's portfolio encompasses a diverse range of holdings. Here's an overview of its top individual positions:
1. Kweichow Moutai Co Ltd: This is China's leading baijiu (a distilled Chinese spirit) manufacturer and distributor, making up approximately 7.92% of KBA's portfolio.
2. Contemporary Amperex Technology: The world's largest supplier of electric vehicle ((EV)) batteries, this company represents about 6.10% of KBA's holdings.
3. Wanhua Chemical Group: A leading chemical product supplier in China, Wanhua Chemical Group makes up about 5.47% of KBA's portfolio.
4. Zijin Mining: One of China's largest gold producers and the second-largest copper producer, Zijin Mining contributes approximately 4.88% to KBA's holdings.
5. BYD: A leading player in the EV market, BYD makes up about 3.87% of KBA's portfolio.
Sector Composition and Weightings
The sector allocation in KBA's portfolio are what you'd largely expect, with Financials, Technology, and Industrials leading the pack. It's worth nothing that China, and this ETF, are ultimately global growth plays, which means if you expect a recession, this isn't something to allocate to from a longer-term perspective.
Peer Comparison
When compared to similar ETFs, KBA holds its own. Its closest comparable, the iShares MSCI China A ETF (CNYA), charges a slightly higher expense ratio of 0.6%. Additionally, KBA's portfolio is more focused, with a lower allocation to major banks, an important distinguishing factor.
Pros and Cons of Investing
The theme that KBA tracks has several pros and cons:
Pros:
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Diversification: KBA offers exposure to a diverse range of sectors and companies within China's A-share market.
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Potential for High Returns: As China's economy continues to grow, there is potential for high returns. This must be balanced against an imploding real estate sector there and high debt, so as the saying goes, high risk, high return potential here.
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Risk Management: The futures contracts for Stock Connect-eligible A-shares offer a potent risk management tool.
Cons:
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Geopolitical Risk: Investing in China comes with its share of geopolitical risks, which can impact the performance of the ETF.
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Regulatory Risk: The Chinese government's regulatory measures can have a significant impact on the companies within KBA's portfolio.
Conclusion
Investing in the KraneShares Bosera MSCI China A 50 Connect Index ETF is a good way to get access to China. The problem is the timing here. The chart, honestly, looks awful.
I'd rather wait for a real capitulatory move in global equities to allocate here. It's a good fund for what it does, and think it's one to trade after a washout. We are nearing that, but not there just yet.
For further details see:
KBA: Wait For It