This Chinese Internet ETF Is Enjoying One Of Its Best Runs

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Ten highly rated Chinese stocks have at least doubled in price this year. Eight of them are in KraneShares CSI China Internet ETF ( KWEB ).

[ibd-display-video id=2322998 width=50 float=left autostart=true] No wonder the exchange traded fund has earned a spot in IBD's ETF Leaders, as the internet-focused fund enjoys one of the best runs in its four-year history.

The ETF has climbed nearly 40% from the moment it broke out of a base in March. More recently, shares broke out to new highs July 19, and they are now finding support in a normal-looking pullback to the 50-day moving average. That leaves the ETF in a new buy area.

Chinese stocks, and internet companies in particular, have been a winning theme this year.

KraneShares says the ETF rests on the long-term thesis that China's internet sector has huge potential as the economy shifts from one mainly rooted in agrarian and manufacturing activity to more of a consumer economy. Chinese online retailers sold $749 billion in goods last year, an increase of 26.2%. Moreover, the internet penetration rate of 52.2% leaves plenty of room for growth.

KraneShares CSI China Internet owns about 30 stocks, most of them the U.S.-traded shares of those companies plus several Hong Kong-listed stocks. About half the portfolio is in large-caps, with only a minor portion in small-caps and the rest in midcaps.

The largest holding is Hong Kong-traded Tencent ( TCEHY ). It is one of the largest internet companies in China, a leader in mobile messaging and gaming that bears a resemblance to Facebook ( FB ). Tencent's China- and U.S.-traded shares are near record highs as they extend a rally that started in mid-February.

Among other major holdings, Alibaba ( BABA ), the giant internet retailer that's compared to, has traded above its rising 50-day moving average for almost the entire year. It cleared a 177.10 buy point Sept. 13, but has stalled.

Baidu ( BIDU ), the big web search engine, was going nowhere until it broke out to new highs July 24. Since then, it has rallied to the highest level since November 2014.

While those stocks have done well, they haven't doubled like several others in the portfolio: (WUBA), Autohome (ATHM), Weibo (WB), Sina (SINA), YY (YY), BitAuto (BITA), Baozun (BZUN) and Yirendai (YRD).

Chinese stocks can be volatile, even the ones with high liquidity. Owning an ETF can limit that risk to some extent. Political risk threatens Chinese shares also, although trade disputes involve mainly manufacturing companies.

On Sept. 21, S&P Global Ratings cut China's sovereign credit rating for the first time since 1999 and revised its outlook to stable from negative. S&P said soaring debt has increased financial and economic risks.

The IBD ETF Leaders index shows the performance of a model portfolio of exchange traded funds that are leading the overall market. A computer algorithm selects the ETFs based on relative strength and other objective performance ratings, with periodic adjustments for market trends and conditions. The universe from which the ETFs are selected includes the funds listed below.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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