KraneShares Weekly. Major News and Events: New China opportunities for global investors

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1 New China opportunities for global investors Weekly Major News and Events: Private Companies Make Up Bulk of IPOs Investment banks are for the first time making more money helping private Chinese companies list on the public markets, than from the country s vast number of state-owned enterprises. Just a third of banks fees from equity-raising this year, as of August 2014, have come from state-owned companies, according to analysis of Dealogic data by Credit Suisse and reported by the Financial Times. This compares with more than half for the whole of 2013, and an average of two-thirds during the boom years of Chinese listings between 2005 and The figures cover Chinese companies listing outside the mainland but do not yet factor in the fees from internet group Alibaba s impending initial public offering in New York that will skew the balance even further towards privately owned enterprises. Investors had long been expecting a shift towards private companies following the initial wave of SOE listings that helped make Hong Kong the world s biggest listings venue during the three years to The shift has become even more pronounced this year because of the concentration of private companies in sectors favored by investors, such as technology. Service Sector Businesses Grow The number of newly registered companies in China s service sector stood at 1.3 million in the first six months of the year, according to a recent report of the National Development and Reform Commission (NDRC). Service sector firms accounted for 78 percent of the total newly registered businesses in the country during the period, according to the report. New firms in the service sector played an important role in info@.com info@kraneshares.com Pg. 1

2 creating jobs, said the NDRC. China s service sector grew 8 percent year on year in the first six months, 0.6 percentage points higher than the country s economic growth during the period. Value added output of services has risen to 46.6 percent of the country s gross domestic product, up 1.3 percentage points year on year. Amid economic downward pressure both at home and abroad, China has made efforts to facilitate business registration. A new business registration rule took effect on March 1, with lower capital requirement for new companies and simplified registration procedures. China Power Consumption Shows Signs of Increased Economic Activity China s power consumption, an important indicator of economic activity, is expected to have risen 6.5 percent in the second quarter, bringing the annual rate so far for 2014 to around 6 percent, according to a report released by China Electricity Council. In the first half of the year, power use rose 5.3 percent from a year ago to reach 2.63 trillion kilowatt hours, earlier official data showed. Electricity use by primary industries dropped 4.6 percent year on year. Power consumption by the industrial sector rose 5.1 percent while that by tertiary industries went up 6.9 percent. The China Electricity Council expects the economy to steadily grow in the latter half of the year as a string of government support policies gradually filter through, which will give a boost to power use according to the Xinhua News Agency. Mobile Payment Takes Off Payments through mobile phones in China rose over 700 percent year on year in 2013, a research report recently stated. Mobile payment users also hit 125 million in 2013, up 126 percent year on year, said the 2014 China Internet Financial Development Report. info@.com info@kraneshares.com Pg. 2

3 It was jointly published by the Internet Society of China (ISC) and Finance World, a magazine of Xinhua News Agency. The focus on improved technology to safeguard mobile payments and safety standards to better protect consumers rights is expected to push this number even higher in Local Broker Insight: * Everbright Securities: Judging by development trends in the new energy automobile industry, we believe policy promotion and popularization of new energy autos continues to strengthen, with increased private consumption. We remain optimistic on the new energy auto industry. Haitong Securities: We forecast the downward growth trend in real estate will continue in the second half. However, with loosened policy restrictions and a slight recovery in housing prices, developers will clearly see better sales in the second half of 2014 compared to the first half. The focus should be on how much developers are willing to sacrifice prices to achieve sales. CICC: H-Share Strategy: We Believe The Rally Is Not Over The HK market witnessed remarkable gains in July attributable to stabilizing growth, favorable policy moves and ongoing reform progress, and while some short term profit taking and consolidation is possible, we believe the rally is not over. Markets we think will continue to rise supported by a strong PMI being taken as a positive signal of the success of supportive policies and improving external demand, while a favorable policy environment continues. info@.com info@kraneshares.com Pg. 3

4 Market valuations are still attractive in our view with MSCI China forward PE at 9.3x, while non-financials trade at 12.7x. In terms of implementation, we continue to favor Shanghai- Hong Kong Connect and state owned enterprise (SOE) reform candidates. A-Share Strategy: Don t Hesitate Although consolidation is possible, we believe mainland A-share markets will continue to rise on overseas fund inflows, material policy easing, stabilizing and a rebounding economy, along with acceleration of reforms and attractive valuations. In terms of sector allocations, we favor real estate with sector names only halfway into the rally and large-mid-cap blue chips on the Shaghai- Hong Kong Connect program. Other themes we are pushing include IPOs, SOE reform, Beijing- Tianjin-Hebei coordination development, alternative fuel vehicles and Li battery. * is not affiliated with any of the brokers listed, and neither nor SEI Investments Distribution Co. sponsor the opinions or information offered by these brokers, nor do they assume liability for any loss that may result from relying on these opinions or information. The material is not intended as an offer or solicitation for purchase or sale of any security, nor is it individual or personalized investment advice. info@.com info@kraneshares.com Pg. 4

5 For more information about investing in China, or ETFs please contact us: Brendan Ahern Managing Director Christian Ruppenstein Managing Director ****Carefully consider the Funds investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds summary or full prospectus, which may be obtained by clicking here (KFYP, KWEB, KBA). Read the prospectus carefully before investing.**** Investing involves risk, including possible loss of principal. There can be no assurance that the Funds will achieve their stated objectives. The Funds focus their investments primarily with Chinese issuers and issuers with economic ties to China. The Funds are subject to political, social or economic instability within China which may cause decline in value. Fluctuations in currency of foreign countries may have an adverse effect to domestic currency values. Emerging markets involve heightened risk related to the same factors as well as increase volatility and lower trading volume. Current and future holdings are subject to risk. Narrowly focused investments typically exhibit higher volatility. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, evolving industry standards and frequent new product productions. Such changes may have an adverse impact on performance. The ability of the Bosera MSCI China A ETF to achieve its investment objective is dependent on the continuous availability of A Shares and the ability to obtain, if necessary, additional A Shares quota. If the Fund is unable to obtain sufficient exposure due to the limited availability of A Share quota, the Fund could seek exposure to the component securities of the Underlying Index by investing in depositary receipts. The Fund may, in some cases, also invest in Hong Kong listed versions of the component securities and B Shares issued by the same companies that issue A Shares in the Underlying Index. The Fund may also use derivatives or invest in ETFs that provide comparable exposures. Investments in info@.com info@kraneshares.com Pg. 5

6 derivatives, including swap contracts and index futures in particular, may pose risks in addition to those associated with investing directly in securities or other investments, including illiquidity of the derivatives, imperfect correlations with underlying investments, lack of availability and counterparty risk. The use of swap agreements entails certain risks, which may be different from, and possibly greater than, the risks associated with investing directly in the underlying asset. The Fund, may be concentrated in the financial services sector. Those companies may be adversely impacted by many factors, including, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased liquidity in credit markets. This sector has experienced significant losses in the recent past, and the impact of more stringent capital requirements and of recent or future regulation on any individual financial company or on the sector as a whole cannot be predicted. The ETFs are distributed by SEI Investments Distribution Company, 1 Freedom Valley Drive, Oaks, PA 19456, which is not affiliated with Krane Funds Advisors, LLC, the Investment Adviser for the Fund. delivers real-time capital market, reference, fundamental, and time-series statistical databases, with the speed, depth and breadth institutions require. Our principled approach to sourcing, aggregating and integrating data and content from multiple domestic and international partners ensures Clients receive timely, comprehensive, and reliable Greater China intelligence. Disclaimer: This report sets out information by Ltd. collected from a variety ofsources and should in no way be construed as investment, financial, legal or other advice. The information and opinions contained herein are for reference only, and are not a recommendation, offer, or solicitation to buy or sell any securities whatsoever. has taken all due care to ensure the accuracy of the information provided in this report, but cannot guarantee the validity or accuracy of all sources of information. is not a registered investment advisor or broker dealer. Copyright of this report belongs to. Any unauthorized distribution, reproduction, publication, or quote is prohibited without s express written permission.countries may have an adverse effect to domestic currency values. Emerging markets involve heightened risk related to the same factors as well as increase volatility and lower trading volume. Current and future holdings are subject to risk.