President Trump has promised to “Make America Great Again.” A big part of that is rebuilding America infrastructure. The president’s pledge to spend $1 trillion on new roads, bridges, and railways makes sense to most Americans. It’s also popular with investors: A wave of new exchange-traded funds (ETFs) are devoted entirely to infrastructure stocks and bonds.
On the other side of the globe, China has an ambitious project to make its country great again, as well. In 2013, the Chinese government announced the Belt and Road Initiative (BRI), a trillion-dollar infrastructure plan that involves 69 countries, nearly two-thirds of the world’s population, and one-third of global GDP.
Make China Great Again
The Belt and Road envisions building new infrastructure connecting Asia to Europe. For the Chinese government, the goal is to make it easier to export Chinese products. If things go as planned, China will be able to create new export markets around the globe.
Investors are lining up to get involved, and a new China ETF offers the perfect chance. Earlier this month, Krane Funds Advisors launched the KraneShares MSCI One Belt One Road ETF (OBOR).
“We believe the OBOR initiative is creating a new paradigm in global investing”, wrote Jonathan Krane, founder and CEO of KraneShares. “The OBOR initiative will receive trillions of dollars of investment over the next decade and should increase the economies and trade of both China and the participating nations.”
The OBOR will track the performance of the MSCI Global China Infrastructure Exposure Index, which covers companies directly involved in the Belt and Road Initative.
But while it’s designed to track the Belt and Road, the index covers much more than just China. Chinese companies make up 44% of the OBOR’s weight, with 56% accounted for by other countries. Singapore and Israel make up a combined 16%. Russia and Poland pick up another 10%.
“This index aims to capture the performance of wide-ranging global infrastructure investment opportunities represented by China’s One Belt One Road initiative,” wrote Christine Berg, managing director at MSCI.
The Index includes 93 companies such as Singapore’s OCBC Bank, Russia’s Rosneft, the China State Construction Engineering Corporation, and Sime Darby, a major Malaysian manufacturer. That’s a good sign for investors. More diversity means less dependence on Chinese economic growth.
The largest sectors are manufacturing—40%; raw materials—24%; utilities—16%; energy—11%; and finance—9%. All of these are important to the success of the Belt and Road Initiative. On the plus side, they’re diverse enough that, even if the initiative is less successful than China hopes, this new China ETF could still make money for its investors.
What’s more, OBOR isn’t the only new China ETF available to investors. Other popular options are the FTSE China 50 UCITS ETF and the MSCI China Index UCITS ETF. These funds are devoted to the Chinese economy generally, not just companies involved in the Belt and Road.
Watch Out for Risks
Investing in OBOR and other new China ETFs comes with risks. For starters, investing in these assets means putting money into developing countries. By definition that involves economic and political risk.
It’s also important not to put all your eggs in one basket. China may be an economic superpower, but the days of 10% growth have passed. China’s economy grew by 6.7% in 2016 and is on pace for 6.9% growth this year. A wiser choice might be to invest in specific stocks rather than ETFs, which track a larger portion of the economy.
That being said, there’s plenty of money to be made betting on the Chinese economy. Just make sure you do your homework before opening checkbook.