(Bloomberg) -- The firm behind the largest exchange-traded fund targeting Chinese tech is bullish on the prospects of a potential audit deal between Beijing and Washington, an agreement it says would prompt investors to flock back to beaten-down shares.

“Over the last year the tech industry has had a lot of regulations around it, the audit situation has also created downward pressure,” Jonathan Krane, Chief Executive Officer of Krane Funds Advisors, the investment manager for KraneShares ETFs said in an interview this month. “Once there’s a solution, I think there’ll be massive flows going into this space.”

That would represent an about-turn. US-traded KraneShares CSI China Internet ETF saw outflows of almost $700 million last month, according to Bloomberg data, the worst month ever for the $6.2 billion vehicle. The fund, which includes the likes of Alibaba Group Holding Ltd. and Tencent Holdings Ltd., has slumped by about 30% this year amid the long-running dispute that threatens to delist Chinese firms from US exchanges.  

The standoff over access to audit documents has prompted worries it would lead to the delisting of about 200 firms from New York exchanges. Such fears eased somewhat when Beijing and Washington last month reached a preliminary deal to allow American officials to review audit documents of Chinese businesses that trade in the US.

Success is still far from guaranteed, with plenty of scope for disagreements. Even if a deal is reached there’s still potential for uncertainty over how much time it would take to reach the deal and implementation. 

The dispute has already altered the makeup of the flagship fund. Historically, the fund manager’s flagship tech ETF held 75% of its holdings in Chinese American Depositary Receipts and the rest in shares traded in Hong Kong. That has inverted over the past year to reduce the impact of any potential delistings. Now, Krane’s optimism is such that the fund is considering shifting back again to the previous distribution. 

“There’s motivation from both sides,” he said. “China wants to participate in US capital markets. US investors understand China through a lot of these ADR companies. They enjoy having these companies in their portfolio.” 

The China-focused fund house, which was acquired by China investment bank China International Capital Corporation in 2017, has $12 billion of assets under management. It is hoping to nearly treble that in the next few years with a lineup of new issuance including more green and climate focused ETFs, according to Chen Xiaolin, head of international at KraneShares, who says China has plenty of capacity to stoke economic growth and Chinese assets are undervalued. 

“The price of Chinese assets is already distressed,” she said. “The surprise is on the upside.”

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