Tencent’s Decline Proving Costly for These ETFs

March 28th at 9:30am by Todd Shriber

Unlike many rival Chinese Internet companies, such as Baidu (NasdaqGS: BIDU), shares of Tencent Holdings (OTCBB: TCEHY), China’s largest Internet firm, do not trade on a major U.S. exchange. Rather, Tencent trades over-the-counter in the U.S., so it is understandable that some investors may not be aware of the stock’s recent woes.

They should be, particularly if they own select exchange traded funds. And with Tencent’s market value of about $123.4 billion, some familiar ETFs hold the stock and at large weights. That could be an unpleasant surprise to some investors with the stock down more than 15% in just the past month.

Tencent, not Facebook (NasdaqGS: FB) is the largest holding in the Global X Social Media Index ETF (NYSEArca: SOCL).  The ETF allocates 13.07% to Tencent compared to 12.22% to Facebook and it is the Tencent allocation that partially explains SOCL’s recent woes. Heading into Thursday’s session, the ETF “registered 14 down days out of the last 17 days. Since baseball season is upon us, that’s an unimpressive .214 batting average, and not what you look for in your ETF going into earnings season,” according to Street One Financial. [Revisiting Social Media]

Remember all the talk about the iShares China Large-Cap ETF (NYSEArca: FXI) being too heavily allocated to Chinese banks and not accurately reflective of the Chinese economy? Well, to its credit, FXI has diversified, sort of. It now features a 9.3% weight to Tencent and that explains why FXI’s recent rise is tepid compared to some other emerging markets ETFs. Over the past week, FXI is up 3.2%, but the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is higher by7.3%. [ETFs for Risk-Tolerant Traders]

While FXI has traded higher over the past week, Tencent’s weakness has permeated the once high-flying Chinese Internet complex, taking the Guggenheim China Technology ETF (NYSEArca: CQQQ) down 7.6%, highlighting the risks of the ETF’s 11.7% weight to Tencent. The stock is the ETF’s largest holding by 340 basis points over the second-largest holding.

One ETF with “stealth” Tencent exposure is fighting off the stock’s recent woes. Shares of the iShares MSCI South Africa ETF (NYSEArca: EZA) are higher by 4.2% in the past week despite Naspers, 15% of EZA’s weight, owning 34% of Tencent.

Global X Social Media Index ETF

Tom Lydon’s clients own shares of Facebook.

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