November is setting up to be a pivotal month for the KraneShares CSI China Internet ETF (KraneShares Trust (KWEB)), and that starts Wednesday, when Chinese e-commerce giant Alibaba Group Holding Ltd (BABA) steps into the earnings confessional.
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China Commerce, E-Commerce
As Benzinga reported Tuesday, China commerce revenue growth is expected at 42 percent year-on-year, driven by China online retail sales growth of 29.9 percent, according to reports by the National Bureau of Statistics of China.
The Role Of Alibaba
According to a report on Yahoo Finance, Alibaba is expected to have benefited from the stabilizing economic growth in China, while retail sales are likely to have received a 1011 percent boost over the last three months.
Alibaba, China's largest e-commerce company, is KWEB's largest holding at 12.3 percent of the ETF's weight. That is over 200 basis points more than KWEB allocates to its second-largest holding, Tencent Holdings Ltd (TCTZF), according to issuer data.
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In recent weeks, multiple analysts have issued reports saying they expect Alibaba to report double-digit profit and sales growth for its fiscal second. Thirty-nine analysts follow the company with 35 having the equivalent of a Buy rating on the shares.
Given KWEB's hefty Alibaba exposure, a big post-earnings move for the stock has the potential to move the needle for one of this year's better-performing China ETFs. Not surprisingly, it would benefit KWEB if Alibaba surprises to the upside and ups guidance, particularly because it could force a spate of short covering in the name. Short interest in Alibaba has soared this year as the shares have done the same. At the end of the third quarter, short interest in Alibaba was close to $13 billion, reported the Wall Street Journal.
Other Catalysts For KWEB
Wednesday's earnings announcement from Alibaba is not the only significant event that could move KWEB this month. On November 11, China observes Singles' Day, a day devoted to gift-giving among Chinese singles.
Think Amazon.com, Inc. (AMZN)'s Prime Day earlier this year was a big deal? Amazon generated over $500 million that day, a paltry figure compared to the $14.3 billion in sales Alibaba generated on Singles' Day 2015, a number the Chinese company is expected to easily surpass this year.
Data suggest that discrepancy is not surprising and is rather logical.
China's ecommerce market size reached $590 billion in 2015, compared to $342 billion in the U.S., according to KraneShares.
Over the past three months, KWEB is higher by 12.7 percent, an advantage of almost 800 basis points over the largest U.S. internet ETF.
Image Credit: By Chrionexfleckeri1350 (Own work) [CC BY-SA 4.0], via Wikimedia Commons
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