Behind The Surge In The China Internet ETF [KraneShares Trust, Guggenheim China Technology ETF, Global X China Technology ETF]

china etfsAfter witnessing 30 years of stellar economic growth, the Chinese economy has been going through a choppy phase for quite some time now. If we ignore some occasional upbeat data from the last 1.5 years, one has to question the health of the world’s second largest economy.

The nation saw weakened growth for 2013 to hit 14-year lows. China snapped a growth rate of 7.7%, which came a little above the market expectation of 7.6% expansion. Notably, analysts’ expectations for growth were the slowest since 1999.

For 2014, the Chinese government has targeted 7.5% growth rate, though this muted growth projection comes at the cost of new reforms in China, as per the government, while recent export figures haven’t helped either.

Quite expectedly, this near-term gloomy outlook has punished most of the China ETFs this year, as the vast majority are seeing modest losses to start 2014. However, only one sector — technology – has held up pretty well in this downslide, with Guggenheim China Technology ETF (CQQQ) and Global X China Technology ETF (QQQC) returning just under 10.0%.

And beyond these, the China Internet ETF CSI China Internet ETF (NASDAQ:KWEB) has also edged past the other two tech ETFs gaining as much as 21% this year. This is why the space demands close attention, especially given the broad weakness in other corners of the Chinese market.

What’s Behind This Bullishness?

China is possibly the most important emerging market and has ample room for expansion in the technology sector that will support its journey toward becoming a developed nation. Internet penetration is still low in China though people are embracing e-commerce activities and PC sales are increasing, thus urging the nation to go for further technological advancements.

China recorded 618 million Internet users to close out 2013 and 500 million mobile Internet users. The Internet penetration rate in China also increased to 45.8% in 2013 from 42.1% in 2012. To leverage this growing demand in the sector, China aims its technology sector to contribute 5% of GDP now, 8% in 2015 and 15% by 2020.

Several market analysts believe that market capitalizations of Chinese Internet companies are contesting hard with the largest U.S. and global industry players.

 KWEB in Focus

This ETF is a rather new member in the China ETF space, having forayed into the market on July 31 of 2013 and accumulated more than $75.0 million in assets within such a short span. The ETF is exposed to the companies doing business in the segments like Internet software, home entertainment and educational software, commercial or retail services primarily provided online, and development of mobile Internet software or mobile Internet services.

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