The China Consumer E-Commerce Opportunity

An Overview of the KraneShares CSI China Internet ETF

(Ticker: KWEB)

Date: 9/30/2024

Introduction to KraneShares

About KraneShares

Krane Funds Advisors, LLC is a specialist investment manager focused on China, Climate, and Alternative assets. KraneShares seeks to provide innovative, high conviction, and first to market strategies. The firm was founded in 2013 and manages for institutions and individuals globally. In 2017, KraneShares formed a strategic partnership with China International Capital Corporation (CICC) when they acquired a majority ownership stake. The firm is a signatory of the United Nations-supported Principles for Responsible Investment (UN PRI).

Product Suite

China Focused

Thematic Equity

• KWEB - Internet & E-Commerce*
• KURE - Healthcare
• KGRN - Clean Technology*
• KSTR - STAR Market*
• KTEC - Hang Seng Tech
• KPRO - 100% KWEB Defined Outcome
• KBUF - 90% KWEB Defined Outcome

Core Equity

• KBA - MSCI China A 50
• KALL - MSCI All China
• KCAI - China Onshore Alpha Index

Options Income

• KLIP - China Internet & Covered Call

Climate Aligned

Carbon

• KRBN - Global Carbon Strategy
• KEUA - European Carbon Allowance
• KCCA - California Carbon Allowance

Equity

• KSEA - Ocean Engagement

Fixed Income

• KCSH - Sustainable Ultra Short Duration

Alternatives

Fixed Income

• IVOL - Quadratic Interest Rate Volatility & Inflation Hedge
• BNDD - Quadratic Deflation ETF

Managed Futures

• KMLM - Mount Lucas Managed Futures

Equity

• KSPY - Hedgeye Hedged Equity
• BUYO - Man Buyout Beta Index

Global

Asia Fixed Income

• KHYB - Asia High Income USD Bond

Global Equity

• KARS - Electric Vehicles & Future Mobility*
• OBOR - One Belt One Road
• KLXY - Global Luxury
• AGIX - Artificial Intelligence & Technology

EM Equity

• KEMX - MSCI Emerging Markets ex China
• KEMQ - Emerging Markets Consumer Tech
• KEM - Dynamic Emerging Markets

US Equity

• KVLE - Value Line® Dynamic Dividend Equity

*Strategy also available in UCITS

Concerned about volatility? Introducing The China Volatility Management Suite

We seek to provide investors with unique solutions to manage the volatility of their KWEB and/or China exposure

Option Income

KLIP

• KWEB Covered Calls
• Provides Monthly Distributions*

100% Buffer

KPRO

• KWEB Downside Buffer
• 22.69% Upside Cap

90% Buffer

KBUF

• KWEB Downside Buffer
• 41.20% Upside Cap

Growth

KWEB

• Long Only Exposure
• Top Internet Companies

KWEB

KraneShares CSI China Internet ETF

Investment Strategy:

KWEB seeks to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are within the Internet and Internet-related sectors.

KWEB features:

• Access to Chinese internet companies that provide similar services as Google, Facebook, Twitter, eBay, Amazon, etc.
• Exposure to companies benefitting from increasing domestic consumption by China's growing middle class
• Exposure to Chinese internet companies listed in both the United States and Hong Kong

China Internet Sector Highlights:

• Chinese retail web sales totaled around $2.1 trillion in 2023 (compared to $1.1 trillion in the United States).
• China's internet population reached 1.09 billion people in 2023, a penetration of only 77%. The U.S. internet population reached 311.3 million people, a penetration rate of about 93% in 2023.
• Total Chinese retail sales reached $6.5 trillion in 2023.
• Online shopping accounted for 32% of retail purchases in China in 2023.

What do we believe is already priced in?

Price drivers:

• Forced sellers
• Delisting Concerns
• Russia/Ukraine conflict
• China macro & regulatory picture
• US macro picture

CSI Overseas China Internet Index Performance

Key events annotated on the chart include:

• Record Southbound flows (Jan-Feb)
• Anti-trust guidelines for platforms released (Feb)
• Chinese New Year
• UST repricing by 72bps (Jan 27-Mar 31)
• ADRs sell-off
• Alibaba fine settled
• Q1 GDP results
• Meituan anti-monopoly issues
• DiDi IPO
• 13 fintech companies ordered to restructure (April)
• ADR Selloff
• SEC Chair Gary Gensler announces that the three year timeline for HFCAA compliance had begun
• SEC releases list of companies not complying with the HFCAA
• Liu He addresses HFCAA solution, end of regulations in speech, CSRC proposes rule change to allow PCAOB on-site audits
• HFCAA first step audit agreement reached
• Relaxation of COVID restrictions

Terms:

• UST = US Treasury
• ADR = American Depository Receipt
• HFCAA = Holding Foreign Companies Accountable Act
• GDP = Gross Domestic Product
• CSRC = China Securities Regulatory Commission

Addressing HFCAA

In 2022, KWEB converted the majority of US holdings to Hong Kong shares due to the delisting risk presented by the Holding Foreign Companies Accountable Act (HFCAA).

KWEB Breakdown By Listing Location

Previous - December 31, 2021

• Hong Kong: 43%
• US: 57%

Current - September 30, 2024

• Hong Kong: 68%
• US: 32%

China and Emerging Markets have provided outsized performance if you invested in the right place.

Performance Comparison (Growth of 10,000 Units, 9/30/2010 - 9/30/2024)

• S&P 500: 559%
• MSCI China Information Technology: 550%
• MSCI EM Information Technology: 507%
• MSCI Emerging Markets: 61%
• MSCI China: 52%

"We've answered skeptical questions about China for each of the past 17 years. It was bank balance sheets. It was trade wars. And throughout this entire period, the end result has been that China's GDP share, relative to the U.S., has gone up 5X."

Chase Coleman, Founder Tiger Global Management LLC

China Population Urbanization Rate & IMF China GDP Per Capita Current Prices

As China's population moves into cities, they gain access to better jobs and wages, which in turn has a positive impact on GDP per capita.

• X-axis: Years from 1960 to 2023
• Left Y-axis (USD): GDP Per Capita (Current US$) ranging from 0 to ~14,000
• Right Y-axis (%): Urban Population (% of total population) ranging from 0 to ~70%

The chart shows a strong correlation between rising urbanization rates and increasing GDP per capita in China, with both metrics showing significant acceleration from the 1990s onward.

China Household Per Capita Annual Disposable Income of Urban & Rural Households

China's urban population has almost three times more disposable income than their rural counterparts.

• X-axis: Years from 1997 to 2023
• Y-axis (USD): Annual disposable income ranging from 0 to ~8,000 USD

Key Data Points (2023 approximate):

• Urban household per capita annual disposable income: ~$7,200 USD
• Rural household per capita annual net income: ~$3,000 USD

The chart shows urban household income (blue line) consistently and significantly outpacing rural household income (red line) from 1997 to 2023.

The China Internet Evolution

• China's E-Commerce market size surpassed the U.S. for the first time in 2013.
• 77% of China's population has internet access compared to 93% in the U.S.
• We believe there is potential for substantial continued growth in the Chinese internet sector.

China / US Internet Statistics

Metric	China	US
Total internet population	1.09B	311mm
% of population with internet access	77%	93%
Country's share of world internet users	20.4%	5.8%
E-Commerce market size 2023	$2.1T	$1.1T
Total retail sales 2023	$6.5T	$7.2T
Online retail sales as % of total 2023	32%	15%

A Tale of Two Chinas

In 2013, the services sector surpassed the industrial sector as the largest contributor to China's GDP for the first time.

While traditional manufacturing is slowing, the service sector Purchasing Managers' Index (PMI) indicates healthy growth in domestic consumption.

China GDP Breakdown (2013 - 2023)

• Agricultural Industry
• Industrial Industry
• Service Industry

China Manufacturing PMI vs. Non-manufacturing PMI (9/30/2014 - 9/30/2024)

• China Non-Manufacturing PMI SA
• China Manufacturing PMI

Retail sales have expanded steadily in China over the past 10 years.

Value of Monthly China Retail Sales Index (12/31/2013 - 12/31/2023)

• Total Chinese retail sales reached $6.5 trillion in 2023.
• Chinese retail websites sold $2.1 trillion worth of goods in 2023.
• Online shopping accounted for 32% of total retail sales in 2023.

The 3 & 5-year average revenue growth rates for China internet companies are like many U.S. internet companies.

Top 10 KWEB Holdings vs. their U.S. equivalents as of the latest earnings release (Q2 2024)

Top 10 KWEB Holdings	Primary Business	KWEB Weight	3Y Avg Revenue Growth	5Y Avg Revenue Growth	Comparable U.S. Business	US 3Y Avg Revenue Growth	US 5Y Avg Revenue Growth
ALIBABA	E-Commerce	10.89%	14%	23%	Amazon	15%	20%
TENCENT	Social Media	9.82%	8%	14%	Facebook	19%	21%
MEITUAN	Food Delivery	8.97%	37%	36%	Grubhub	51%	122%
JD.COM	E-Commerce	7.09%	14%	19%	Amazon	15%	20%
PINDUODUO	E-Commerce	6.22%	78%	94%	Amazon	15%	20%
KE HOLDINGS	Real Estate	4.20%	15%	23%	Zillow	28%	44%
TRIP.COM	Travel	4.11%	47%	23%	Booking.com	64%	30%
BAIDU	Search Engine	3.68%	8%	6%	Google	20%	18%
BILIBILI	Video Streaming	3.57%	26%	42%	Roku	28%	38%
KUAISHOU TECHNOLOGY	Social Media	3.56%	25%	28%	Facebook	19%	21%
Total		62.11%	Average: 27%	Average: 31%		Average: 27%	Average: 35%

Despite high growth rates, China's leading internet companies currently trade at relatively low multiples.

Top 10 KWEB Holdings Valuation Metrics

Top 10 KWEB Holdings	KWEB Weight	Price to Earnings (P/E)	Forward P/E	Price to Book (P/B)	Price to Cash Flow (P/CF)
ALIBABA	10.89%	29.1	13.6	2.08	10.4
TENCENT	9.82%	25.2	18.5	4.46	18.7
MEITUAN	8.97%	43.0	24.0	5.98	36.9
JD.COM	7.09%	15.5	11.0	2.06	11.0
PINDUODUO	6.22%	14.5	11.1	5.36	20.6
KE HOLDINGS	4.20%	41.1	19.5	2.42	18.2
TRIP.COM	4.11%	21.9	18.7	2.26	23.4
BAIDU	3.68%	14.1	9.8	1.09	5.5
BILIBILI	3.57%	--	--	5.50	--
KUAISHOU TECHNOLOGY	3.56%	15.8	13.3	3.92	13.2
Total Average	62.11%	24.5	15.5	3.5	17.5

KWEB's top 10 holdings are profitable, and we believe declines in KWEB have not been driven by fundamentals.

KWEB Price vs. Top 10 Revenue & Net Income (Quarterly)

• KWEB Top 10 Revenue
• KWEB Top 10 Net Income

Price to Earnings (P/E) Ratio

• 20.2x CSI Overseas China Internet Index
• 28.8x Dow Jones US Internet Composite Index

If KWEB closes the gap with US and long-term average multiple...

KWEB Forward P/E

KWEB's forward P/E would need to rise...

• 71% to reach its long-term average.
• 89% to reach that of US Internet.
• 187% to reach its all-time high.

China's rapid adoption of new technologies has produced a "leapfrogging" effect.

Payment

Cash → Checking → Credit → Mobile Pay

Commerce

Local Market → Big Box Retailer → E-Commerce

Transportation

Taxi → Car Ownership → App-Based Ride Sharing

Healthcare

Local Medical Care → Hospitals → E-Health

Alibaba has been split into six different companies, with each able to fundraise and list on its own.

Domestic E-Commerce

Tmall.com (B2C Online Retail Platform)

International E-Commerce

Lazada (Southeast Asia E-commerce)

Logistics

Cainiao (E-commerce Logistics Platform)

Local Services

Ele.me (Delivery Platform)

Cloud

Alibaba Cloud (Cloud Computing Services Provider to Online Businesses)

Media

Youku (Online video platform)

Historically, Alibaba has outperformed Amazon in terms of revenue growth and profit margins.

YoY Revenue Growth (2014-2023)

• Alibaba vs. Amazon year-over-year revenue growth comparison

Profit Margins (2014-2023)

• Alibaba vs. Amazon profit margin comparison

KWEB's holdings have a combined $234 billion worth of cash on their balance sheets, more than Amazon and Alphabet combined

Entity	Cash on Balance Sheet
KWEB	$234 Billion
Amazon	$73 Billion
Alphabet Google	$24 Billion

One could purchase all the companies in KWEB with the market capitalization of either Amazon or Google and still have $800 billion+ left over

• Amazon = KWEB + $846 Billion
• Alphabet Google = KWEB + $1,120 Billion

KWEB companies have strong buyback policies.

KWEB Top 10 Share Buyback Yield

Company	Buyback Yield (%)
Alibaba	9.25
Meituan	8.75
Tencent	8.21
KE Holdings	3.94
Baidu	1.46
JD.com	0.92
Trip.com	0.09
PDD	0.00
KWEB Average	6.72

Since 2017, KWEB's correlation to the Renminbi (CNY) has increased. CNY could rebound as the Fed pauses rate hikes and economic activity rebounds in China.

KWEB vs. CNY

Key Periods:

Negative Correlation:

• 9/30/2013 – 12/30/2016: CNY -13.5%, KWEB +16.7%

Positive Correlation:

• 12/30/2016 – 1/31/2018: CNY +9.6%, KWEB +90.2%
• 3/31/2020 – 2/28/2021: CNY +8.5%, KWEB +98.9%
• 10/31/2022 – 1/31/2023: CNY +7.5%, KWEB +76.4%

KraneShares CSI China Internet ETF

Investment Strategy:

KWEB (the Fund) tracks the CSI Overseas China Internet Index (the Index) and invests in China based companies whose primary business or businesses are focused on internet and internet-related technology. These companies are publicly traded on either the Hong Kong Stock Exchange, NASDAQ Stock Market, or New York Stock Exchange.

Fund Details (Data as of 09/30/2024)

Detail	Value
Primary Exchange	NYSE
CUSIP	500767306
ISIN	US5007673065
Total Annual Fund Operating Expense	0.70%
Inception Date	07/31/2013
Distribution Frequency	Annual
Underlying Index	CSI Overseas China Internet Index
Net Assets	$6,522,428,336
Number of Holdings	35

Top 10 Holdings as of 09/30/2024

Holding	Ticker	%
ALIBABA GROUP HOLDING LTD	9988	10.99
TENCENT HOLDINGS LTD	700	9.90
MEITUAN-CLASS B	3690	9.06
JD.COM INC-CLASS A	9618	7.16
PDD HOLDINGS INC	PDD	6.27
KE HOLDINGS INC-ADR	BEKE	4.23
TRIP.COM GROUP LTD	9961	4.13
BAIDU INC-CLASS A	9888	3.71
BILIBILI INC-CLASS Z	9626	3.61
KUAISHOU TECHNOLOGY	1024	3.58

KWEB Performance History as of 09/30/2024

	3 Mo	6 Mo	Since Inception	1 Yr	5 Yr	10 Yr	Since Inception
Fund NAV	28.28%	33.31%	63.96%	29.13%	-1.47%	1.58%	4.52%
Closing Price	25.91%	29.60%	59.29%	26.47%	-1.99%	1.30%	4.25%
Underlying Index	28.39%	32.23%	65.97%	28.08%	-1.26%	1.86%	4.64%

Adding a strategic China Internet allocation to EM portfolios can increase exposure to growth sectors.

• Broad-based EM indexes often have greater weights to sectors such as financials and commodities and less exposure to growth sectors.
• Investors may consider adding a strategic China Internet allocation to their current EM portfolio to achieve the sector exposure that matches their specific growth appetite.

Sector Allocation Scenarios

Allocation	% Weight of Growth Sectors
MSCI EM 100%	56.01%
China Internet 25% / MSCI EM 75%	63.08%
China Internet 50% / MSCI EM 50%	70.16%
China Internet 75% / MSCI EM 25%	77.23%

MSCI EM 100% Sector Breakdown

Financials 23%, Information Technology 22%, Consumer Discretionary 14%, Communication Services 9%, Materials 7%, Industrials 7%, Consumer Staples 5%, Energy 5%, Health Care 4%, Utilities 3%, Real Estate 1%

China Internet 25% / MSCI EM 75% Sector Breakdown

Consumer Discretionary 22%, Communication Services 18%, Financials 18%, Information Technology 17%, Consumer Staples 6%, Industrials 6%, Materials 5%, Energy 4%, Real Estate 2%, Health Care 3%, Utilities 2%

China Internet 50% / MSCI EM 50% Sector Breakdown

Consumer Discretionary 30%, Communication Services 22%, Financials 13%, Information Technology 11%, Consumer Staples 6%, Industrials 5%, Real Estate 3%, Materials 3%, Energy 2%, Health Care 2%, Utilities 1%

China Internet 75% / MSCI EM 25% Sector Breakdown

Consumer Discretionary 38%, Communication Services 29%, Financials 9%, Consumer Staples 6%, Information Technology 6%, Industrials 4%, Real Estate 4%, Materials 2%, Health Care 1%, Energy 1%, Utilities 1%

Traditional China indexes have greater exposure to State-Owned Enterprises.

• State-Owned Enterprises are defined by MSCI as companies whose largest shareholder is a government entity or whose government ownership is over 20%.
• The MSCI China Index has higher exposure to SOEs, which constitute about 9% of the Index by weight.
• KWEB has no exposure to SOEs.

MSCI China Index Sector Breakdown of SOEs and Non-SOEs

(% SOE vs. % Non-SOE across sectors including Consumer Discretionary, Communication Services, Financials, Information Technology, Health Care, Consumer Staples, Industrials, Materials, Energy, Real Estate, Utilities)

KWEB Sector Breakdown

(Sectors: Consumer Discretionary ~45%, Communication Services ~35%, Consumer Staples ~7%, Real Estate ~4%, Industrials ~3%, Financials ~3%, Health Care ~2%)

KWEB's investment strategy provides a basket approach to China internet sector, which is aimed at potentially reducing volatility compared to individually held China Internet stocks.

Historical Return / Volatility of KWEB & Its Top Holdings Since KWEB Inception (7/31/2013) & The Past 2 Years

Top Ten Holdings as of 7/31/2013

Holding	Ticker	%
BAIDU INC - SPON ADR	BIDU US	10.37
TENCENT HOLDINGS LTD	700 HK	9.62
CTRIP.COM INTERNATIONAL- ADR	TCOM US	6.77
NETEASE INC - ADR	NTES US	6.61
SINA CORP	SINA US	4.83
VIPSHOP HOLDINGS LTD - ADR	VIPS US	4.80
FANG HOLDINGS LTD - ADR	SFUN US	4.28
KINGSOFT CORP LTD	3888 HK	3.97
RENREN INC - ADR	RENN US	3.53
51JOB INC - ADR	JOBS US	3.41

Top Ten Holdings as of 12/31/2022

Holding	Ticker	%
TENCENT HOLDINGS LTD	700 HK	10.64
ALIBABA GROUP HLD – SP ADR	BABA US	8.30
MEITUAN – CLASS B	3690 HK	8.08
JD.COM INC – CL A	JD US	6.33
PINDUODUO INC – ADR	PDD US	5.60
KUAISHOU TECHNOLOGY	1024 HK	4.53
TENCENT MUSIC ENT – ADR	TME US	4.51
NETEASE INC – ADR	NTES US	4.13
TRIP.COM GROUP LTD	TCOM US	4.09
FULL TRUCK ALLIANCE – SPN ADR	YMM US	3.78

Top Ten Holdings as of 12/31/2023

Holding	Ticker	%
ALIBABA GROUP HOLDING LTD	9988	9.50
TENCENT HOLDINGS LTD	700	9.25
PDD HOLDINGS INC	PDD	8.08
MEITUAN-CLASS B	3690	6.61
NETEASE INC	9999	5.07
JD.COM INC-CLASS A	9618	4.36
KANZHUN LTD - ADR	BZ	4.21
TRIP.COM GROUP LTD	9961	4.17
KE HOLDINGS INC-ADR	BEKE	4.14
BAIDU INC-CLASS A	9888	4.13

Important Notes (continued)

The S&P 500 Index: is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.

The MSCI Emerging Markets Net USD Index: captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 834 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

FTSE China 50 Index: is a real-time tradable index comprising 50 of the largest and most liquid Chinese stocks (H Shares, Red Chips and P Chips) listed and trading on the Stock Exchange of Hong Kong (SEHK).

MSCI China Net USD Index: The MSCI China Index captures large and mid cap representation across China H shares, B shares, Red chips and P chips. With 157 constituents, the index covers about 84% of this China equity universe.

S&P China BMI Index: is a comprehensive benchmark that defines and measures the investable universe of publicly traded companies domiciled in China, but are legally available to foreign investors.

The CSI Overseas China Internet Index: selects overseas listed Chinese Internet companies as the index constituents; the index is weighted by free float market cap. The index can measure the overall performance of overseas listed Chinese Internet companies. The Index is within the scope of the IOSCO Assurance Report as at 30 September 2018. The index was launched on September 20, 2011.

Price-to-Earnings (P/E): The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).

Forward Price-to-Earnings (P/E): Forward price-to-earnings (forward P/E) is a version of the ratio of price-to-earnings (P/E) that uses forecasted earnings for the P/E calculation.

Price-to-Book (P/B): Companies use the price-to-book ratio (P/B ratio) to compare a firm's market capitalization to its book value.

Price-to-Cash Flow (P/CF): The price-to-cash flow is a stock valuation indicator or multiple that measures the value of a stock's price relative to its operating cash flow per share.

Price-to-Sales (P/S): The price-to-sales ratio is a valuation ratio that compares a company's stock price to its revenues.

Important Notes:

Carefully consider the Funds' investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds' full and summary prospectus, which may be obtained by visiting www.kraneshares.com/kweb. Read the prospectus carefully before investing.

Risk Disclosures:

Investing involves risk, including possible loss of principal. There can be no assurance that a Fund will achieve its stated objectives. Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses.

The ability of the Fund to achieve its respective investment objectives is dependent, in part, on the continuous availability of A Shares and the ability to obtain, if necessary, additional A Shares quota.

Narrowly focused investments typically exhibit higher volatility. The Fund's assets are expected to be concentrated in a sector, industry, market, or group of concentrations to the extent that the Underlying Index has such concentrations. KWEB is non-diversified.

ETF shares are bought and sold on an exchange at market price (not NAV) and are not individually redeemed from the Fund.

The KraneShares ETFs and KFA Funds ETFs are distributed by SEI Investments Distribution Company (SIDCO), 1 Freedom Valley Drive, Oaks, PA 19456, which is not affiliated with Krane Funds Advisors, LLC, the Investment Adviser for the Funds, or any sub-advisers for the Funds.