Baidu (NasdaqGS: BIDU), the Chinese Internet search known frequently referred to as its home country’s version of Google (NasdaqGS: GOOG) could be an imminent catalyst for exchange traded funds with significant exposure to Chinese Internet stocks.
Shares of Baidu are off 9.5% year-to-date, while the PowerShares QQQ (NasdaqGM: QQQ), the Nasdaq-100 (NDQ) tracking ETF and home to Baidu, is up almost 8%. Some traders are betting Baidu’s slump is nearing its end.
“Demand for bullish calls on China’s largest search engine has surged and the shares have risen 9.9 percent in the two weeks through July 24. Options are implying a one-day move of 8.5 percent in Baidu’s stock after it posts results on July 27 at the close of U.S. markets,” reports Belinda Cao for Bloomberg.
A rebound by Baidu would be a boon for ETFs like the KraneShares CSI China Internet Fund (NasdaqGM: KWEB). KWEB allocates 8.6% of its weight to Baidu, making the stock the third-largest holding in the fund. Although it has recently slumped, KWEB is up 16%, a performance that underscores the ETF’s resilience in the face of declines by Baidu and Alibaba (NYSE: BABA).
As has been frequently noted in the past, there is a strong long-term bull case for Chinese Internet names. China eRetailing sales topped $410 billion in 2013 and is projected to reach $650 billion by 2020; a 59% increase in sales and 4.3% of Chinese retail sales occur over the Internet, according to KraneShares. That is nearly quadruple the U.S. number. [Revisiting China Internet ETFs]
“Ownership of Baidu calls has risen 29 percent in the past month to about 1.4 times the number of puts last week, driving the ratio of bullish contracts to bearish ones to the highest since mid May, according to data compiled by Bloomberg,” according to the news agency.
Baidu reports earnings today. A positive reaction to Baidu’s earnings and guidance would also helpful for the Guggenheim China Technology ETF (NYSEArca: CQQQ). Like KWEB, CQQQ has slumped in recent weeks, but the ETF is up 6.2% year-to-date. Like the rival KWEB, CQQQ has weathered declines by Baidu and Alibaba, an impressive feat considering those stocks combine for 18.6% of the ETF’s weight. [China Internet ETF Staves Off Alibaba Slump]
In January, MSCI said it will allow some companies with primary stock market listings outside of their home domiciles into the firm’s equity indexes, paving the way for Alibaba and Baidu to join some-well know international indexes. Prior to Alibaba’s IPO, MSCI said the company would not be eligible to join MSCI indexes because of the company’s decision to primarily list in New York while incorporating in the Cayman Islands. [MSCI to Add Alibaba, Baidu to Global Indexes]
MSCI’s inclusion process will not start until November and work in two stages lasting until February 2016, according to KraneShares.
KraneShares CSI China Internet Fund
Tom Lydon’s clients own shares of QQQ.