ETF Edge

Global markets are 'on sale' for long-term investors, says China ETF issuer

Navigating the China trade amid coronavirus-fueled declines: KraneShares

A constructive view on China.

That's what exchange-traded fund issuer KraneShares is advocating as global markets feel the pressure of the growing coronavirus outbreak, the China-focused firm's chief investment officer, Brendan Ahern, told CNBC's "ETF Edge" on Monday.

"The markets were due for a correction" in China and the United States after a strong 2019, Ahern said. "I think this is a little bit of just the market ... taking a correction. Who would've thought corona? But I think markets, for long-term investors, are on sale."

U.S. buyers appeared to recognize that early on Wednesday as stocks bounced back from a nearly 2,000-point sell-off earlier in the week. China's Shanghai Composite index, which had a weak start to the year, has recovered slightly from its January drop.

So far, Ahern's suite of China-based ETFs is holding up as well. KraneShares' Bosera MSCI China A Share ETF (KBA), a catch-all for large and midsize Chinese companies, climbed more than 1% on Wednesday, bringing its year-to-date gain back into the green. The KraneShares CSI China Internet ETF (KWEB), widely considered the benchmark ETF for Chinese internet names, is up 4% for 2020.

"If you're quarantined at home in China, what are you doing? ... Online gaming, online education, downloading content," Ahern said, attributing the sharp sell-off in Chinese internet stocks this week to "a kneejerk reaction" from investors.

"They're just basically throwing away these great names that arguably are actually benefiting from this," he said. "I think what you're starting to see is, in mainland China, equity markets are stabilizing. So, I think that'll slowly come and we'll see these names, which are on sale, being bought."

Perhaps one of KraneShares's more interesting winners this year has been its MSCI All China Health Care Index ETF (KURE), which tracks a mix of stocks in China's health-care market and has gained nearly 10% year to date.

As China's government enacts stimulus measures across its economy including in the health-care space, KURE is poised to continue its climb, Ahern said.

"Health care is an area that has a little bit of a defensive as well as an offensive characteristic right now," he said. "It's clearly a beneficiary."

All in all, the investment pro didn't see the coronavirus weighing too heavily on China's economic outlook.

"We're seeing a lot of fiscal monetary policy to get the economy going. We know Q1 data's going to be very weak for China, but they're ... saying Q2, 3, 4 are going to more than make up for it," Ahern said. "They're not changing their 2020 targets, so, that's where I think investors who are selling today could be regretting that very, very quickly."

Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, said investors should note their exposure to Chinese stocks via funds like the iShares MSCI Emerging Markets ETF (EEM) or Vanguard FTSE Emerging Markets Index Fund ETF (VWO).

"It's important for investors to realize they have [more] exposure in a broader ETF portfolio than they perhaps realize," he said in the same "ETF Edge" interview. "We think that 2020 is going to be a volatile year to begin with, and that was before we saw what was going on in China."

KWEB gained nearly 2% by midday Wednesday. KURE shed less than 1%.