It’s the world’s second-largest economy, but China remains tough to navigate for investors. Conversely, it’s ripe with opportunity.
While China’s equity markets are far from sanguine and last year’s regulatory crackdown by the Chinese Communist Party (CCPO) remains fresh on the minds of global investors, there are way to get wade back into Chinese equities without a full commitment, including the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ).
As of the end of 2021, EMQQ allocates 51.6% of its weight to China. That’s well above the MSCI Emerging Markets Index, but the exchange traded fund’s sizable China exposure could be worth considering for risk-tolerant investors.
“We do not see a rush to turn outright bullish at the broad index level, and would like to see more signs of an exit strategy from the zero-Covid policy, easing of global geopolitical tension, and revival of the overseas IPO market, among others, for a sustainable rally,” said Morgan Stanley analysts in a recent note. “We believe it makes sense to look at stocks with strong fundamentals but that have been oversold lately.”
Three U.S.-listed stocks made Morgan Stanley’s list of Chinese stocks to consider, including one EMQQ holding: e-commerce company Pinduoduo.
“Pinduoduo attracted users with a social element that required customers to buy products in groups — with family, friends or strangers — in order to benefit from bulk order discounts. The company has focused increasingly on working with farmers and agriculture products,” reports Evelyn Cheng for CNBC.
Pinduoduo is seen as a growing competitive threat to fellow EMQQ holdings Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD). Good news: Pinduoduo is profitable and managing costs well.
“Our revenue growth slowed down due to moderating user growth and fluctuation in user activity,” Jun Liu, vice president of finance of Pinduoduo, said in a release. “At the same time, we recorded a profit in the fourth quarter, which is attributable to more controlled spending as we adjust to slower growth, and a one-off rebate from one of our service providers.”
Pinduoduo is EMQQ’s eighth-largest holding at a weight of 4.2%, according to issuer data. South Korea and India are among the fund’s other geographic exposures, combining for almost 18% of the ETF’s weight.
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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.