Chinese internet stocks have taken a beating and this presents us with one of the best opportunities in the market. While the S&P 500 is up more than 13% since February 18, the KraneShares CSI China Internet ETF (NYSE: KWEB) has since lost about 50%.
The companies in this ETF are big, growing fast and very profitable. These companies are dominant internet businesses in the world’s most populous country, with one of the fastest-growing e-commerce markets in the world. The potential of these Chinese internet stocks is bigger than that of American companies. Chinese internet retail sales totalled $1.5 trillion in 2019, which is nearly a triple of the $601 billion posted for U.S. internet retail sales. Also, the growth is much faster.
The Chinese internet population has currently reached 854 million people, which is a market penetration of only 61.2% (US: 294 million with a rate of 89.5%). The valuations of these Chinese companies are much lower than those of their American counterparts, which is unusual. Chinese internet giants come usually with a premium.
These businesses are outstanding, with bright growth prospects and attractive long-term margins. It looks like the “shooting fish in a barrel” scenario or just follow Warren Buffet and “get a little greedy when everyone else is fearful.”
Sven Franssen