Chalk it up to the Chinese consumer.
So says KraneShares' Brendan Ahern about his bullish forecast for Chinese stocks in 2020, which he's attributing to the largely overlooked strength of the consumers who are fueling the world's second-largest economy.
"From just an economic perspective, the trade war has been an inhibitor to growth," Ahern said Wednesday on CNBC's "ETF Edge."
But as the chief investment officer of his firm, which manages a suite of China-focused exchange-traded funds under the credo that "the relationship between the United States and China will be the most important economic partnership of our lifetimes," Ahern says the trade war's overhang on the Chinese stock market could soon dissipate.
"The consumption side of China is alive and well, as evidenced by Singles Day, by U.S. multinationals doing business [in China], so, I think as the cloud goes away, you're going to see investors come back into the China equity market in a big way. We're already seeing that," he said.
Ahern may just be right. Singles Day, Alibaba's online shopping holiday, raked in $23 billion in sales in its first nine hours and a record $38 billion in total. Competitors JD.com and Pinduoduo also reaped billions of dollars in sales.
Alibaba's recent secondary share listing in Hong Kong confirmed both the company's strength and the appetites of its customers. The blockbuster listing marked one of the largest share offerings in 2019, second only to Saudi Aramco's trillion-dollar IPO, according to FactSet.
"Alibaba went and listed in Hong Kong...because, one, the local investors know Alibaba has nothing to do with the trade war. It has no revenue here," Ahern said. "It's growing like gangbusters and yet, investors, because it has a China name, didn't want to hold it."
Next year will bring another "major catalyst for the stock" when Alibaba is included in the Stock Connect program, which links mainland China's Shanghai and Shenzhen exchanges with Hong Kong's Hang Seng index, enabling investors to more easily trade stocks across those borders, Ahern said.
"Mainland China still can't buy the Hong Kong listing. That will happen, probably, in Q1 of next year," he said. "Big, big move once that happens."
In short, "the Chinese consumer is alive and well," and "they're leapfrogging over the big-box retailer, big-box mall" by shopping online, Ahern said. "That's what we want to hold."
KraneShares' CSI China Internet ETF (KWEB) does just that. Up over 30% for 2019, its top holdings are a mix of U.S.- and China-listed stocks including Alibaba, Tencent, Meituan Dianping, Baidu, and JD.com.
As investors increasingly take note of China's "consumption story," KWEB and even KraneShares' broader China ETF, the Bosera MSCI China A-Share ETF (KBA), should see more traction, Ahern said.
"KWEB holds those companies that are the transmission engines" for Chinese e-commerce and the growth of China's economy, Ahern said. "So, we're very positive for both of these trends going forward."
KWEB closed up about 0.5% Friday, while KBA fell by roughly one-tenth of 1%.