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A New ETF Avenue to Mainland China


KraneShares is expanding its lineup of China exchange traded funds today with the launch of the KraneShares Bosera MSCI China A ETF (NYSEArca:KBA) , the third U.S.-listed ETF to offer direct access to China’s A-shares markets.

KraneShares is the first U.S.-owned company partnered with a Chinese asset manager, Bosera Asset Management, to receive an investment quota from a Chinese regulatory agency for a Renminbi Qualified Foreign Institutional Investor (RQFII) ETF in the U.S. Bosera, China’s fifth-largest asset manager, had $32.3 billion in assets under management, including $13.8 billion in pension assets, at the end of last year, according to a statement.

KBA will compete directly with the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) and the Market Vectors China ETF (PEK) . ASHR was the first U.S.-listed ETF to offer direct access to China A-shares equities traded in Shanghai and Shenzhen. Earlier this year, PEK converted to physical A-shares holdings from a derivatives-based concept. [A-Shares ETFs Provide New Access to China Stocks]

KBA has the makings of legitimate competitor to its older rivals as it is the first A-shares ETF to benchmark to the MSCI China A Index. That index had 462 constituents at the end of the third quarter, according to MSCI data, far more than the CSI 300 Index.

“”KraneShares Bosera MSCI China A Share ETF is the first China A Share ETF on the NYSE to provide meaningful exposure to both large and mid cap Chinese companies. We believe mid cap Chinese companies stand to benefit the most from China’s shift to a domestic consumption economy and the growth of its middle class from 300 million to 600 million people over the next 10 years,” said KraneShares CEO John Krane in the statement.

Currently, China limits foreign investors’ access to A-shares, which trade in Shanghai and Shenzhen, to Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors. However, the world’s second-largest economy is looking to boost foreign investment and increased access to A-shares is one way of doing that. [A-Shares Boost Access to Chinese Equity Markets]

The MSCI China A Index was launched in May 2005. Its components have an average market value of $1.75 billion with a price-to-book ratio of 1.58 and dividend yield of 2.34%, according to MSCI data.

KBA will allocate less than a third of its weight to financial services stocks, well below the weight to the sector in some China ETFs that hold Hong Kong-listed shares. Industrial and consumer discretionary names combine for 29% of the new ETF’s weight.

The other KraneShares ETFs are the high-flying KraneShares CSI China Internet Fund (KWEB) and the KraneShares CSI China Five Year Plan ETF (KFYP) , both of which debuted last year and have already shown a penchant for topping some older China funds. [Overlooked China ETF Soars]

Chart Courtesy: Krane Shares, MSCI

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.