Despite crackdown fears, Chinese tech ETFs race ahead in 2021

Chinese tech ETFs are up 20% so far in 2021, notably outpacing the wider China index. 

Investors in Chinese tech companies have had a few reasons to be nervous over the past few months.

First, there was the shelving of Ant Group’s initial public offering (IPO) in November 2020. Ant Group is an affiliate company of the e-commerce giant Alibaba Group (NYSE:BABA) and owns China’s largest digital payment platform Alipay. The company had been spun off from Alibaba and was set to raise almost $40 billion in what was supposed to be the largest IPO in history.

However, at the last minute the IPO was shelved by China’s regulators.

Also in November, the Chinese government proposed new antitrust rules. Many analysts feared that the new rules would be used to restrict or even break up some of China’s tech giants. Within a few weeks it was announced that Alibaba would be subject to an antitrust investigation.

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All this was interpreted by observers as part of a crackdown on Chinese tech by the government. While the Chinese tech sector has been a huge success for the country, it was speculated that the Chinese government now felt tech companies were getting too powerful and needed to be reined in.

On top of this, there was also speculation that the Trump administration, in its final days, was looking to ban Americans from investing in Alibaba or Tencent (SEHK:700). This was felt in the share price of China’s largest tech companies.

However, in January, those fears largely receded and China’s tech companies surged ahead.

Since the start of the year, Alibaba’s share price has increased by around 14%. Tencent had an even better start to 2021, with its share price up by almost 30%. Other Chinese tech giants have also had strong starts. Food delivery company Meituan (SEHK:3690) is up more than 40%, while Baidu’s (NASDAQ:BIDU) share price has increased by around 15%. 

All this has translated into strong performance for the Chinese stock market. The MSCI China index, for example, is up around 12% year-to-date, total return in sterling terms.

However, it has translated into even better performance for Chinese tech ETFs. KraneShares CSI China Internet ETF (LSE:KWEB) has returned investors almost 20% year-to-date, total return in sterling terms. The ETF tracks the CSI Overseas China Internet Index.  

The EMQQ Emerging Markets Internet and Ecommerce ETF (LSE: EMQQ) has also benefited from the performance of Chinese tech. Since the start of the year, it has provided a return of around 15%. While the ETF is focused on emerging market tech, that inevitably means having a very large weighting to China.