The combination of China and Internet stocks is proving particularly potent this year. Just look at the KraneShares CSI China Internet Fund (NasdaqGM: KWEB), which is higher by just over 22% year-to-date.
Emerging market investors are also focusing on the boom in consumer spending and technological growth. That theme could be a boon for KWEB, which is home to such well-known Chinese stocks as Tencent, Alibaba (NYSE: BABA), Baidu (NASDAQ: BIDU) and JD.com (NASDAQ: JD), among others.
As has been widely noted in the past, the e-commerce opportunity in China is massive. Based purely on sheer size, China’s Internet and mobile phone markets are substantially larger than those in the U.S. Additionally, brick-and-mortar infrastructure is slack in China, a sign that up-and-coming Chinese consumers are adept at and prefer to buy online.
“And it’s a huge market with 700 million smartphone users, encompassing half of the population, and it has expanded by roughly 50 million new mobile users annually over the past two years,” reports Dimitra DeFotis of Barron’s, citing Barclays research.
The Chinese economy is also shifting towards domestic-oriented consumption as a main growth driver. Consequently, consumption-driven sectors like technology and services are becoming a growing component in the economy.
More aggressive investors may utilize something like the Direxion Daily CSI China Internet Index Bull 2X Shares (NYSEArca: CWEB), which tracks the same underlying benchmark as KWEB but with a 200% kicker, to gain a bullish leveraged long approach to the growing Chinese internet industry.
E-commerce logistics in China are more advanced than in the U.S. as well.
“In China, logistics have been aggressively built out over the past decade … JD.com (JD) is taking the Amazon approach and building everything end-to-end itself to ensure the highest service levels, but absorbing all those costs as well,” according to the Barclays note posted by Barron’s. “Alibaba has taken the partnership approach whereby it links the network of preferred service providers using advanced software to ensure high service levels (Cainiao), but avoids the costs of building out warehouses and delivery.”
For more information on the Chinese markets, visit our China category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.