Maturing, vibrant industries are often home to robust competition, and when proper strategies are deployed, investors can capitalize on competitive trends. Consider the case of China’s still rapidly growing online retail space.
While many U.S. investors are familiar with select companies in this industry, they may not be aware that China’s online retail space is teeming with competition. The KraneShares CSI China Internet ETF (KWEB) is arguably the premier exchange traded fund for accessing that theme.
“Competition in China’s online retail, or e-tailing, sector is heating up among both general e-commerce and on-demand food delivery, challenging leading incumbents’ market share and revenue growth momentum,” noted Fitch Ratings. “Investments to defend market position could hurt margins, although our rated companies’ strong balance sheets and free cash flow generation should help them weather potential challenges in the near term.”
While the $6.23 billion KWEB allocates nearly 20% of its weight to Chinese internet titans Tencent (OTC: TCEHY) and Alibaba (NYSE: BABA), the fund is home to 32 other stocks — plenty of which could benefit from increased competition in China’s e-commerce and internet retail markets.
KWEB’s positioning is pertinent because not only does China have the demographic trends to support long-term internet retail growth, online shopping is the preferred method for many Chinese consumers.
“Online penetration of goods retail sales will consequently remain largely flat at around 30%. The online sales growth will be supported by improving employment among the younger population, who have a higher propensity to shop online, growing storage and logistics capacity following strong fixed-asset investment growth in the associated sectors in 2021 and 2022, and e-tailers’ more aggressive marketing efforts, such as subsidies,” added Fitch.
One benefit of rising competition is that smart incumbents are forced to lead, follow, or get out of the way. Specific to KWEB member firms, it appears that some aren’t going to easily cede market share — a potential positive for investors. Those include Alibaba, JD.com (NASDAQ: JD), and Meituan, the last of which is KWEB’s third-largest holding.
Alibaba and Meituan are branching out into new arenas that intersect with established businesses — moves that could pay dividends over the long haul for KWEB investors.
“The wide range of functionalities Meituan’s and Alibaba’s ecosystems offer that allow users to conveniently access various consumer services, providing a highly engaging customer experience and enhancing loyalty. This will give them an edge in defending their market positions as competition heats up,” concluded Fitch.
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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.