Capturing Opportunities in China’s Thriving Technology Sector
The development of technology in China has taken an incredible leap in the past decade. Artificial Intelligence, high-end equipment, biomedicine and other high-tech fields are now integrated into people's daily lives, while just 10 years ago, most Chinese most people could hardly get access to the Internet.
In this video, Cultural Analyst Xiabing Su and Investment Strategist Henry Greene discuss the importance of the STAR Market in China, as well as the KraneShares SSE STAR Market 50 Index ETF (Ticker:KSTR) as a great tool for investors to capture China's most innovative technology companies.
Hi guys, I’m Xiabing from KraneShares. In this video, our topic is technology-related investment opportunities. Artificial Intelligence, Cloud Computing and high-tech manufacturing may sound so far from our daily life, but if we take a closer look of what they have brought us, we will be surprised of how dramatically technology has changed our lives especially in China. 10 years ago, not even one-fourth of the Chinese population could access the Internet, and artificial Intelligence was a word that not many people even heard of. But take a look of today, Internet has been the cornerstone of people’s life. Alipay’s facial recognition is everywhere thanks to AI technology. 5G allows people in rural areas can watch short videos on TikTok seamlessly, and cloud computing has been widely applied to biomedicine and other aspects that benefit people’s lives. Supporting the development of technology has also been written in China’s 15th Five-Year Plan. How can investors capture these great opportunities? I checked in with my colleague Henry Greene, to get an overview of our fund, the KraneShares SSE STAR Market 50 Index ETF, ticker KSTR.
Thank you Xiabing! The STAR Market has certainly been called the "Nasdaq of China" due to its focus on high-growth technology companies. Also, like the Nasdaq, the STAR Market is starting out with a market capitalization of around $100 billion, which is almost precisely where the Nasdaq was back when it began in 1971. In order to list on the STAR Board, companies need to fulfill at least one of five separate listing requirements. These requirements are profitability, minimum R&D spend, minimum overall revenue, minimum operating cash flow, and/or a minimum level of strategic importance as determined by the government. Now because companies only need to fulfill one of these five requirements in order to list, that means that pre-profit companies are fully able to list on the STAR Market. China wants its Shenzhen tech hub to rival the likes of Silicon Valley in the United States and also to grow its larger technology sector. One hurdle to this plan has been the inability for companies to access capital in public markets within China’s borders. This problem is solved by the introduction of the STAR Market, which does not require companies to be profitable. The KraneShares SSE STAR Market 50 Index ETF, ticker KSTR, also known as KSTR, provides investors access to the 50 leading companies listed on the STAR Market. Like the Nasdaq was at its inception, the STAR Market is a very volatile market. So, we believe it is prudent when investing in KSTR to maintain a long-term investment horizon.
Thank you Henry! The companies held within KSTR are Chinese companies in the most advanced technological fields. Many of them cover different aspects of people’s lives, from travel to work, and even housework.
In the 2021 Shanghai Auto Show, cars powered by high-rate Nickel batteries (like Nio ES6) have become one of the highlights of the show. It is very helpful to increase battery capacity and extend battery life with lower costs. Ronbay Technology, listed on the STAR Board, is one of the top companies in China specializing in high-rate Nickel batteries. It has been selected as the best enterprise in China's core competitiveness industry, now partnering with customers like BYD, LG and SAMSUNG.
Another company is Kingsoft, we call it “Microsoft of China” due to its widely used office software products. It has compatibility with Microsoft Suite, meaning you can open/save documents like Word, Excel, and PowerPoint from Microsoft Office. Kingsoft also creates an initial backup upon first save. You can also set up the frequency of autosaves by yourself. Providing service for [the] government, companies and individuals, the number of monthly active users of the main products of Kingsoft Office Group reached 494 million, with an increase of 11% year-over-year1 (as of March 31, 2021)
House-cleaning is a must in China before important holidays like Spring Festival. Cleaning Robots are a great tool to release the hands and times for busy urban people. Roborock is a company focused on smart cleaning robots and other cleaning products. It once partnered with Mi for cleaning robots and vacuum cleaners. In 2020, the annual revenue has reached 4.5 billion yuan, and the net profit was 1.3 billion yuan2.
The development of the STAR Market follows a trend of China developing and opening its capital markets. Recently, Chinese President Xi Jinping announced that the country would be launching a new stock exchange in Beijing. However, this exchange will focus on existing OTC markets in China, rather than high-growth technology companies. Therefore, it will not rival but complement the STAR Market. Thank you and join us next time! And don’t forget to subscribe to KraneShares.com for our latest updates and research.
- Data from finance.eastmoney.com, as of 2021/06
- Data from finance.china.com.cn, as of 2021/08
For KSTR standard performance and top 10 holdings click here. Past performance is no guarantee of future results. Diversification does not protect against market risk.