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Investing in China in the Age of Trump (and Beyond)

Eric Dutram
  • (0:40) - Is China a good investment in a Trump era?
  • (3:45) - What challenges lie ahead for China?
  • (9:15) - China's 5 Year Plan: Tech and Consumer focused.
  • (11:00) - China ETF: KYFP
  • (15:45) - How does KYFP fit into your portfolio?
  • (16:50) - Misconceptions of China's Economy
  • (18:45) - Episode Round Up

Investors are usually wrong when it comes to predicting doom and gloom for the Chinese economy. Many had thought that the nation would succumb to an economic crisis in recent years, but China keeps growing at an impressive clip anyway, and it is managing to diversify its economy beyond heavy manufacturing too.

But with the election of Donald Trump, some investors are having doubts regarding Chinese investments again. After all, the rhetoric from the Trump administration—including chief trade adviser Peter Navarro—has been less than friendly (to put it mildly) and some are worried about tensions or worse between the U.S. and China as a result. But is this sort of pessimism warranted?

To get to the bottom of this important question, I spoke with Brendan Ahern, the CIO of KraneShares for this edition of the Dutram Report. His company is a China-focused ETF shop, so he is a top-notch resource for all things investing when it comes to China.

I get his take on the Trump question, as well as what the future holds for Chinese-American relations in the near term. Additionally, we talk about other major risk factors to China and what is going on in the economy right now that investors need to know about.

Beyond Trump

We also go beyond politics though, since the China economic story is much bigger than worries about relations with a single country. In particular, we take a look at the shifting focus of the Chinese government and the idea of their ‘Five-Year Plans’.

These plans tend to be the priorities for the Chinese government and can be indicative of where big investments or help will go towards in the near term. For the latest Five-Year Plan, China is moving towards growth industries further up the value chain, and is trying to shift away from sectors like materials and energy in the process. We talk about what this means for investors, and KraneShares’ approach to tackling these trends with their KFYP ETF as well.

Investing in China

KraneShares’ KFYP dives deep into these trends by selecting stocks based on which appear to be important to the government’s most recent Five-Year Plan, while also looking at fundamental factors too. This technique gives investors more of a focus on consumer and technology industries while also running the gambit of different Chinese share classes as well. We also discuss the pros and cons of this more sector-focused approach, which includes allocations to somewhat well-known Chinese companies such as Tencent (TCEHY) or Netease (NTES), and skews away from energy and banking sectors.

This difference is especially important when you consider what the current crop of most popular China ETFs focus on these days. The most popular fund, FXI, puts close to half of its assets in financials, while we see a 26% weight to this sector in MCHI and a 25% weight in GXC.

Obviously, this makes KFYP’s approach unique, and we go over what this means for investors who are looking for China exposure in today’s climate, as well as a bit about those just seeking a technology play which is something their KWEB ETF focuses on. So, make sure to tune in for that, and more, in this week’s podcast.

Bottom Line

China is an economy that cannot be overlooked. And while there could be some rockiness in the next few years, it is hard to bet against continued growth in the nation and a further push towards the diversification of their economy. This could make China ETFs tilted away from industries like banks and energy worth a closer look, making KFYP an especially intriguing choice due to its focus on Five-Year Plans.

So, make sure to listen to this edition of the Dutram Report for a closer look at China and how U.S. investors could play the nation in the near term, as well as the economic focus of the Chinese government right now. And if you have any thoughts or comments, reach us on SoundCloud or at podcast @ zacks.com for email. We’d love to know what you think of this chat, and if you have any other topics you’d like us to cover in the future too.

But for more news and discussion regarding the world of ETFs, make sure to be on the lookout for the next edition of the Dutram Report, and check out the many other great Zacks podcasts as well!

In particular, make sure to check out our content team’s recent podcast that also has a focus on China. This edition should give you some basics about investing in the country, so make sure to listen to that one as well if you want to learn even more about the world of Chinese equities.

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In the interest of full disclosure, KFYP is based on an index run by Zacks Index Services.


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NetEase, Inc. (NTES): Free Stock Analysis Report
 
ISHARS-CHINA LC (FXI): ETF Research Reports
 
SPDR-SP CHINA (GXC): ETF Research Reports
 
Tencent Holding Ltd. (TCEHY): Free Stock Analysis Report
 
ISHARS-MS CH IF (MCHI): ETF Research Reports
 
KRANS-C CHN 5YP (KFYP): ETF Research Reports
 
KRANS-C CHN INT (KWEB): ETF Research Reports
 
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