How KSTR and LUMA Aim to Capture China Tech and AI Demand

**SPEAKER_1** (0:00)
It's time now for our ETF watchlist segment. Joining me right now, Henry Greene, Senior Investment Strategist, KraneShares. So glad you are with us, and this is a winning fund. KSTR over one year is up nearly 70%.
Let's talk about China's technology and the interest folks have in this group.

**Henry Greene** (0:22)
Hi, Nicole. Yeah, thanks for having me. It's nice to see you.
Yeah, KSTAR is a really interesting ETF. We launched it back in 2021, which was shortly after the STAR Market was actually launched in China. The STAR Market is the premier listing venue for pre-profit Chinese technology companies in mainland China. They're listing in mainland China. So before the STAR Market, if you were pre-profit, you couldn't really list in China onshore or offshore. You had to come list in the US. This was a move in China to get companies that were pre-profit to list within China. Fast forward to today, we see it mostly concentrated in the semiconductor industry. This has been hugely beneficial to the fund so far this year. The fund is up 30 percent.
That's why it is currently our KraneShares, China technology and semiconductor index ETF being 80 percent in the semiconductor space. That includes names like Cambricon, which is very much China's answer to NVIDIA as well as the recent IPO just a few weeks ago of CXMT, that's Changshin Memory Technology. They're a really interesting name that we just added to the portfolio.
CXMT is their key memory supply, memory chip maker. They're actually meeting a lot of demand where there's a shortage right now in memory chips. A lot of them are being taken up by the AI hyperscalers. We're seeing them as potentially being a new supplier to Apple, US company Apple, because they're just having trouble accessing chips at a competitive rate because of all of the AI build out. It's a really interesting company just out of the portfolio. KSTAR is a key way, one of the only ways for US investors or global investors to get direct access to the shares, hold them directly, whereas some of our competitors in the space actually use a swap. So we think that's a key advantage that we have.

**SPEAKER_1** (2:22)
Yeah, it gives people access to some of these names that they wouldn't normally be able to get involved with over a couple of years. I mean, this was less than $9 a couple of years ago, and now it's at $25. So it really shows the growth you've had. CXMT, we covered that IPO here and I saw it up about 500 percent. It certainly sounds like the prospects for the company are really interesting. But when it was so elevated with that IPO, did you take it as a good thing that there's way more demand than people realize, and that's good for stocks? Or were you nervous that the stock had run up too much, and you didn't necessarily want to put it in the fund so fast?

**Henry Greene** (3:02)
Yeah, it's a good question, Nicole. I mean, let's remember that the float on this stock, CXMT was relatively low.
I think it's less than 10% of actual shares outstanding are unrestricted and freely tradable. So that obviously had a big impact on the very strong move when it debuted on the STAR Market. And it's important to remember, I mean, right now, when you look at the total market cap, it's neck and neck with 10 cent, about 500 billion. And so, you know, but that's owing to the, in some ways, to the restricted nature, to the low free float.
So that is one caveat there. But at the end of the day, this is a company with a very strong projections with a high degree of potential. Again, as I mentioned, it's possible that they'll be a supplier to Apple pending government approval of that relationship. They're currently in negotiations. So, you know, there's a lot of uncertainty around this company, but there's certainly a great deal of potential. But just with the caveat of that low free float.

**SPEAKER_1** (4:06)
Did you want to speak briefly about LUMA, the newest ETF from KraneShares, Photonic and Optical ETF?

**Henry Greene** (4:15)
Yeah, absolutely, Nicole. So LUMA is our newest ETF. We launched it just last month and it's up 6 percent about since its debut and LUMA captures, yes, as you said, the photonics and optical communications technology.
So for those who don't know, that refers to things like optical. A lot of people know fiber optic cable, maybe your home Internet, right? It's coming from that fiber optic cable, that super high speed Internet connection that you can get. So that's one component of this. Basically, what we're seeing is this is going to be absolutely vital if the AI adoption is to continue in the way that people are currently projecting. What's happened is over the past two decades, it's estimated that actual compute power has increased almost 60,000 times, whereas the actual wiring, what sends the data from one place to another, whether that's inside a data center or into your home, has only increased by 30 times. So that's a huge bottleneck when it comes to the AI rollout. So we think that's a huge opportunity for these optical companies, for these optical communications companies to really supply that to the industry and to the world, improving the speed of our communication. So fiber optic cable is one example, but optical communications basically means that you're sending data using light, using photons as opposed to using electrons, like we think of normally using copper wires. And using light to send data, nothing travels faster than light.