Alibaba’s upcoming IPO gives an added boost to the country’s tech ETFs.
China, the second-largest economy in the world, is seemingly picking up steam again after a lackluster first half. ETFs—specifically technology funds—that currently bet on the region, are enjoying an uptick, both in flows and performance.
The Chinese government’s long-term plans to diverge away from a dependence on exports to increasing domestic demand and Ben Bernanke’s decision on Sept. 18 to not taper has helped boost the region’s recent economic recovery.
Sectorwise, the run-up in valuations for tech companies such as Baidu and Tencent are being fueled by e-commerce giant Alibaba’s much-anticipated initial public offering, translating into hefty returns for Chinese tech-focused ETFs.
The $34.2 million Guggenheim China Technology ETF (CQQQ | D-31) is up 50.76 percent year-to-date, and 33.47 percent for the past three months, according to data compiled by IndexUniverse. The fund picked up $9.45 million in inflows during September,
Also, the $8.1 million Global X Nasdaq China Technology ETF (QQQC | F-24) is up 45.21 percent year-to-date, and 31.36 percent for the past three months. The fund has also picked up $4.02 million of assets in the month of September, or about half of its total AUM.
Chart courtesy of StockCharts.com
Both funds make Baidu and Tencent their top-two holdings. The funds also hold Chinese computer maker Lenovo Group Limited.
“The technology space within China has been phenomenal this year as far as its performance is concerned,” said William Belden, head of Guggenheim’s ETF business. “So we’ve clearly seen that that particular sector has started to generate a lot of traction for people who were looking for a more tactical play.”
In a blog, IndexUniverse analyst Dennis Hudachek attributed investors’ current near-manic interest in the space to consolidation. Larger players such as Baidu, Tencent and Alibaba are snatching up smaller companies to vie for the market’s massive growth potential. Hundreds of millions of Chinese citizens are still not connected to the Internet.
But the real elephant in the room is Alibaba’s upcoming IPO, according to Hudachek. “There’s currently a tremendous amount of hype around expectation for this gargantuan public-market debut. Furthermore, add the hype and expectations from the upcoming Twitter IPO, and you have somewhat of a mania now in the China Internet space,” he wrote.
“To what types of valuations will investors drive up these Internet companies leading up to the Alibaba IPO, and how much of this euphoria will die down after the Alibaba IPO?” he asks.