News & views
ETF OF THE MONTH
KraneShares ICBCCS SSE STAR Market 50 Index UCITS ETF ( KSTAR )
This issue ’ s ETF of the month is KraneShares ’ KSTAR , whose innovative constituents have benefitted from an end to state crackdowns on tech companies and optimism returning to the country ’ s capital markets
Years of hardship for China ’ s most innovative companies have given way to an opportune moment for the KraneShares ICBCCS SSE Star Market 50 index UCITS ETF ( KSTR ) as lockdown and regulatory rollbacks revived the country ’ s tech unicorns . The ETF has returned 17.7 % so far this year , as of 19 April , the second highest of any Europe-listed China ETF , as well as a 20.9 % jump over the trailing half year .
KSTAR became the continent ’ s first ETF offering exposure to the Shanghai Stock Exchange ( SSE ) Science and Technology Innovation Board – STAR market – which launched in 2019 to make Shanghai a more attractive destination for tech , biomedicine and alternative energy company listings simply by registering , rather than seek lengthy Chinese Securities Regulatory Commission ( CSRC ) approvals .
The ETF captures the market by tracking an SSE index of the largest 50 companies listed on the STAR market . With looser listing requirements for company profitability
STAT ATTACK
YTD returns |
17.7 % |
AUM |
$ 3m |
Constituent count |
50 |
Inception date |
26 / 05 / 21 |
Data as at 19 April |
and pricing , STAR welcomed 25 listings within nine months of President Xi Jinping announcing its creation .
However , the ambition of creating a more laissez-faire home for innovative enterprise and China ’ s tendency for heavy state oversight came into conflict when STAR ’ s muchanticipated poster-child – the $ 34.5bn Ant Group IPO – was cancelled in November 2020 .
Some 100 other companies then suspended or terminated their IPOs in the following six months including the fintech arm of Alibaba rival JD . com .
After South China Morning Post Research identified more than 50 antitrust cases or IPO cancellations against Chinese tech companies by the Chinese government ,
the close of 2022 appeared to mark the crackdown ending , with the Chinese Communist Party ( CCP ) awarding 70 new game licences as well as indicating a more lenient stance towards the sector .
Also , despite a relatively inhospitable backdrop for Chinese tech companies , the STAR Market boasted a market cap of $ 840bn with a total of 486 IPOs and $ 102bn capital raised between its inception and November last year . The CCP ’ s decision to announce a 20-point plan to end three years of lockdown was also a boon for investor confidence in Chinese capital markets as well as consumer spending , with eCommerce firms a key beneficiary .
The combination of these factors explains why the STAR Market is outperforming the Nasdaq Composite this year .
Despite a seemingly auspicious few months , KraneShares ’ KSTR ETF currently only houses $ 3m assets under management ( AUM ). While it carries a high fee of 0.82 %, this can be attributed to its specialist exposure – innovative A-Shares that fewer than one in thirty trading accounts in China can access .
The STAR Market continues to mature , as seen with seven STAR-listed companies already planning to list global depository receipts ( GDRs ) on international exchanges , while the CSRC continues to ensure only leading innovators are allowed to list , with two companies recently being deleted for fraudulent IPOs .
The ‘ Nasdaq of China ’ will be one to watch as high interest rates in the west continue to pose challenges to listings of pre-profit start-ups .
MAY 2023 | ETF INSIDER 15