Over the past few months, the issue of “overcapacity” in specific sectors, especially the electric vehicle (EV) sector, has forced the Chinese government to take an affirmative stance. The EV has been plagued with “involution,” the concept referred to as the phenomenon of investing more effort and money for diminishing returns. Many Chinese EV companies have oversupplied the sector with vehicles, forcing companies into a price war as competitors continue to cut price to increase demand. If unregulated, Chinese government officials that it could lead to wasted resources, deflation, low wages and debt stress across the economy, which would come in a time when Chinese equities have shown much improvement. In late July, president XI gave a speech where he stressed the importance of breaking the cycle of “involution," which highlight the importance of the issue (source: theguardian.com). We will continue providing updates as news unfold.

This week, we highlight the KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ). KEMQ broke a double top at $20.50 and moved into a positive trend in May. The fund continues to extend its lead, moving up above $23 for a multi-year high. KEMQ carries a near perfect fund score of 5.85 and a positive score direction of 2.61, indicating that the fund has moved up 2.61 points from its lowest point within the past 6 months. When looking at its default chart, you can see that KEMQ was on a downtrend from early 2021 to late 2023 but has strongly reversed its trend since. The fund has nearly doubled since the beginning of 2024 and carries a year-to-date performance of over 35%. The weekly OBOS reading indicates that the fund sits in normalized and actionable territory. Initial strong support is at $16 while there is no further resistance.

The table below is a review of important technical data on a select group of KraneShares ETFs. Significant changes within the past week are highlighted in Green if positive or Red if negative. This portfolio is designed to be used as a "radar" screen to bring your attention to potentially important technical changes that may require your attention and potential action. When evaluating the Fund Score, the strongest issues have scores of 4 or higher while those ETFs with scores below a 3 are no longer considered solid citizens.

The distribution curve places each ETF on a bell curve according to their respective degrees of overbought or oversold status using a 10-week distribution. ETFs that are statistically oversold will appear on the left-hand side of the bell curve, while those that have become statistically overbought will appear on the right-hand side of the bell curve. Perhaps the most useful attribute of this feature is that it displays the entire universe on the curve at one time to give us a general picture of whether the KraneShares ETF universe is generally overbought on a near-term basis, or generally oversold. Our best opportunities are to buy strong relative strength ETFs that have regressed back toward mean conditions based on market weakness, or have become oversold based upon extreme market weakness. Weekly Distribution is a short-term gauge that is most helpful in timing entry and exit points, while the longer-term information of trend and relative strength is a more controlling factor in the decision of whether to buy or sell.

Legend:

• UPPERCASE indicates that the RS chart is on a buy signal.
• lowercase indicates that the RS chart is in a sell signal.
• GREEN lettering indicates the ETFs trend chart is on a buy signal.
• RED lettering indicates the ETF is on a sell signal.
• Box Color indicates the Sector Status Rating. Green = Favored, Yellow = Average, and Red = Unfavored.

The KraneShares Dynamic China Rotation Model is designed to identify major themes in the Chinese marketplace through the use of the Point & Figure relative strength tools. For more information on the portfolio construction and back testing, see the model info file on the models page.  (Note: The KraneShares ETF Models will be updated Tuesday mornings by 9:30 am EST) 

Weekly Changes: 

* - Dates prior to 10/15/2019, which is when the KraneShares Dynamic China Rotation Model became available on the NDW Research Platform, are representative of when the position was added to the backtested model.