China Calling: Semiconductor Market Opportunities and Risks

[Editor's Note: This article has been updated to show the latest financial data.]    

Slowing GDP growth, a zero COVID-19 policy, regulatory crackdowns and delisting risks—there have been no shortage of worries for investors in China stocks and exchange-traded funds. Over the past year, the KraneShares CSI China Internet ETF (KWEB) has dropped nearly 43%, reflecting those concerns. 

But China is still the world’s second largest economy, and even though its growth is decelerating, it’s still expanding at a faster pace than that of the U.S. The International Monetary Fund predicts China’s economy will grow by 3.3% in 2022, more than the projected 2.3% for the U.S. 

While China’s GDP may end up growing at the slowest pace in more than 40 years, parts of the country’s economy are still seeing strong growth. Nowhere is that more apparent than China’s tech sector. 

The Semiconductor Manufacturing International Corporation, China’s largest chip manufacturer, reported growth of nearly 42% in Q2. This strategically important company surprised the world earlier this month when it reported it had produced advanced 7-nanometer chips, something many had believed it couldn’t do. 

Meanwhile, China’s social media juggernaut ByteDance has taken over the world with its TikTok app, which now has once-invincible platforms like Facebook, Instagram and YouTube playing defense. 

China is also cultivating leading, innovative companies in key fields like artificial intelligence, electric vehicles and alternative energy.  

Opportunity 

It’s easy to forget that China’s market is absolutely massive. Chinese companies have a huge, increasingly wealthy domestic market of 1.4 billion people to sell their products to—four times the number of people in the U.S.  

And global demand for semiconductor technology is only expected to grow with increasing rates of adoption of renewable energy, electric vehicles, artificial intelligence and other fast-evolving market segments. 

Given that and all the innovation we’re seeing in China’s tech industry, perhaps the recent pullback in Chinese stocks presents an opportunity for long-term investors.  

We’ll be discussing these issues and more with Brendan Ahern, chief investment officer, KraneShares, and Derek Yan, director of investments at KraneShares. 

We’ll discuss broader risks involved when investors think of China and if some of these are overblown. And they will highlight the most promising market segments and investment opportunities in China as well as how investors can get exposure to them.  

Join us Thursday, Sept. 15 at 1 p.m. ET for our webinar; you can register here.  

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2