By some estimates, China’s various sovereign wealth funds manage $2 trillion in combined assets. Alone, that’s impressive, but even more so when considering that the total managed by all sovereign wealth funds is estimated to be $12 trillion. As that level of assets indicates, sovereign wealth funds, including Chinese wealth funds, are typically sprawling entities that invest for size in myriad asset classes.
These market participants go beyond the basics of stocks and bonds, tapping real estate, private credit and other unique asset classes to diversify their investment bases. Still, equities are cornerstones for these funds.
On that note, investors looking to wade back into Chinese stocks while following along with the country’s largest sovereign investors may want to consider the KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA). KBA is relevant in this conversation because the exchange fund holds A-shares, or the stocks that trade on mainland China. Those are the stocks that China’s sovereign wealth funds typically lean into.
KBA Has SWF Inroads
Regardless of home country, sovereign wealth funds typically prefer large- and mega-cap stocks over smaller, more speculative fare. That’s true in China and as a result, some KBA holdings are among that country’s sovereign wealth funds’ biggest equity holdings. As one example, Central Huijin Investment features some KBA member firms among its top equity positions.
“The majority of Central Huijin’s top 10 holdings focus on the mega-cap stocks with the most influence on stock market indexes. While they have been buying ETFs, too, their focus has been on the mega-cap-focused Shanghai Stock Exchange 50 and 180 indexes,” according to KraneShares research.
Perhaps supported by sovereign wealth buying of some of its holdings, KBA is outperforming the CSI 300 and MSCI China A indexes on a year-to-date basis. There are other tailwinds emerging for KBA, including market participants reconciling that Chinese stocks can move higher despite risks from the real estate sector and the return of some large-scale foreign investors to Chinese equities.
“Foreign flows into China’s Mainland stock market have picked up this year. Northbound Stock Connect is a mutual market access program that allows foreign investors to purchase A-shares using accounts in Hong Kong. So far this year, investors have poured over $10 billion into Mainland stocks through the program,” adds KraneShares.
Foreign buying of Chinese stocks is pertinent when discussing KBA because as KraneShares notes, the ETF is more heavily allocated to the 10 and 50 purchased Chinese stocks than are broader A-shares benchmarks.
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