What happened in China this week:
Best Performing China ETFs Year-to-Date
AI Drug Researcher QuantumPharm’s Blockbuster IPO
The Chinese Are Drinking Less Coffee: Luckin and Starbucks See Consumption Slump
China Pushing for Solid-State Battery Innovation: 8 Companies That May Benefit
Trip.com Joins the Convertible Bonds Bandwagon
#1 Best Performing China ETFs YTD
Some investors who want to bet on the rebound of China equities might find it easier to do so with ETFs rather than buying individual stocks. This week, we review the year-to-date returns of some prominent China ETFs and analyze their sources of returns to understand which sectors are responding better to government stimulus.
Below is a snapshot of various ETFs, ranked by their year-to-date returns as of June 6, 2024:
The best performer was the Hang Seng China Enterprises Index ETF (SEHK:2828), with a 15.9% return. Its largest holdings include Tencent, Meituan, China Construction Bank, Alibaba, and China Mobile. The information technology and financial sectors dominated more than 60% of the ETF’s weightage.
The second-best performer was the KraneShares CSI China Internet ETF (NYSE:KWEB), delivering a solid 13.4% return. This is a purely tech-focused ETF, with Tencent, Alibaba, Meituan, PDD, and Trip.com as the top five holdings.
However, before concluding that China tech has performed well overall, it's important to note that the CSOP Hang Seng TECH Index ETF (SEHK:3033) was at the other end of the spectrum, with just a 3% return. Its key holdings included Meituan, Tencent, Xiaomi, JD.com, and Kuaishou.
The difference in performance can be attributed to selection and allocation. The 3033 ETF didn’t include performers like PDD and Trip.com, unlike KWEB, and the allocation among tech stocks was different. KWEB invests in China tech stocks listed in both Hong Kong and the U.S., while 3033 only invests in tech stocks within the Hang Seng Index. Therefore, KWEB offers broader exposure.
Overall, these ETFs have strong holdings in technology and financial services stocks. We expect positive sentiment to continue as the government ramps up support for the economy with the debut of the 50-year bond on June 14. Furthermore, individual businesses have their own exciting developments to sustain momentum. Tencent’s new game is generating high earnings, and Meituan continues to report high double-digit revenue growth despite a weak consumer market. Alibaba’s ongoing restructuring could potentially yield a turnaround, especially with the cash raised from convertible debt. Lastly, financial stocks are less likely to outperform due to China banks’ net interest margin hitting a 13-year low. The recent strong rebound is mainly due to diminished pessimism about the property crisis and potential bank collapses.
#2 AI Drug Researcher QuantumPharm’s Blockbuster IPO
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