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While Wall Street Writes Off China, We’re Going to Cash In

2 | By Michael A. Robinson

On Nov. 11, Alibaba Group Holding Ltd. had the kind of sales success tech investors dream about.

The day in question is Singles Day, China’s biggest shopping day of the year – a kind of reverse Valentine’s Day.

In just the first 90 minutes of that day, the e-commerce leader saw $5 billion in online sales – more than Americans spent on Black Friday and Cyber Monday combined last year.

Mobile commerce was a huge success as well. Looking only at sales generated by its mobile platforms, Alibaba brought in $3.8 billion in the first few hours, beating out 2014’s full-day sales.

As you might expect, the event was a major win for Alibaba at a time when Chinese tech stocks are out of favor on Wall Street.

But Alibaba isn’t the only emerging-market e-commerce firm on the move. In fact, other leaders in the category have recently reported huge sales gains.

There’s an easy way to play this entire red-hot sector for less than one-third the price of Alibaba.

Check it out…

Single(s) Best Investment

Most companies would love to have the kind of year Alibaba (NYSE: BABA) had on Singles Day. When the sales bonanza was over, the firm had stacked up a total of $14.3 billion in sales.

That eclipsed last year’s haul of $9.3 billion by 54%, beating analysts’ forecasts. But this was no one-off for one of the world’s largest e-commerce companies.

Just two weeks earlier, Alibaba said sales for the September quarter rose by 32% as the dollar value of transactions climbed by 28% to $112 billion. Earnings per share also increased by 30%.

Both pieces of good news proves what I’ve been saying for some time now – ever since I put Alibaba in The Million Dollar Tech Portfolio. Wall Street’s worries about China’s slowing growth are greatly exaggerated.

Just look how busy shoppers are there. China’s National Bureau of Statistics said retail sales rose 11% last month. Not only did that beat forecasts, but it stands as this year’s single strongest monthly increase.

This helps explain why China’s e-commerce sector is doing so well.

For example, in its third-quarter report released last week, Chinese Internet up-and-comer Tencent Holdings Ltd. (OTC ADR: TCEHY) showed its best sales growth in five quarters. Revenue climbed 34% to roughly $4.2 billion.

Ad sales doubled in the period to $776.5 million, and 65% of that came from mobile. Moreover, Tencent’s profit rose 32% to $1.17 billion.

The company ranks as China’s largest Internet service portal and also provides mobile and telecom services and online advertising. Its mobile chat, messenger and games unit has 860 million users, well over twice the size of the U.S. population.

In a case like this, an investor who wants to get in on Chinese e-commerce would find choosing between Alibaba and Tencent difficult.

But it doesn’t have to be.

One-Stop Shop

That’s where the Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ) comes in. This exchange-traded fund offers patient, long-term investors a lot of upside.

The roughly 40 companies that EMQQ holds are growing their sales at a compound annual growth rate of more than 35% – which means, as a whole, they’re doubling in size about every two years.

EMQQ owns both Alibaba and Tencent. The fund also holds Baidu Inc. (Nasdaq ADR: BIDU), which boasts more than a 60% share of China’s search traffic.

Even better, forecasters at iResearch say Baidu commands more than 90% of China’s online search advertising market. And the company is making a big move into mobile search and commerce.

Mobile sales accounted for 54% of total revenue during the third quarter. That’s an increase of 46% from the year-ago period when mobile accounted for 37% of total sales

Overall, sales for the period came in at $2.89 billion, up 36% from the year-ago quarter. Profits fell 26% to $447 million, but that largely reflects the cost of acquiring new mobile clients.

Chinese firms make up the majority of EMQQ’s holdings. But the fund also is set to profit from the overall growth in emerging markets, which are home to 80% of the world’s population.

A Trip Around the World

For instance, EMQQ holds Naspers Ltd. (OTC ADR: NPSNY), a South African e-commerce conglomerate. Naspers owns dozens of tech properties in Africa, China, Brazil, Russia, India, Southeast Asia and the Middle East.

It’s also a major investor in privately held Flipkart Internet and was behind a big chunk of a $1 billion round of venture capital that Flipkart raised in the summer 2014.

Launched in 2007 as an online bookstore, Flipkart.com is now India’s leading e-commerce marketplace. In all, it covers some 70 different categories and offers more than 15 million products.

Think of it as the Amazon of India, the world’s second-most-populous nation. In fact, two former Amazon.com Inc. (Nasdaq: AMZN) executives founded Flipkart. The company now has around 20 million registered users and roughly 3.5 million daily site visits.

EMQQ also has invested in Mercardolibre Inc. (Nasdaq: MELI), Latin America’s dominant online auction house. It operates in Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela.

Just in this year’s third quarter, Mercardolibre sold 34 million items, a 75% increase from the year-ago quarter. Total gross merchandise sold hit $1.8 billion, a 77% increase based on local currencies.

Yandex NV (Nasdaq: YNDX) gives EMQQ a reach into Russia and Eastern Europe with the “Google of Russia.”

Citing a number of market researchers, Yandex said it had 57.5% of Russia’s search market at the end of October. It boasts 67 million unique visitors a month and has more than 55,000 advertisers. Last year, sales increased 29% to $902 million.

Trading at just $22.50, EMQQ offers a robust portfolio at an attractive price.

Yes, the fund may bounce around in price along with the headlines about China and other emerging markets. But it will do well over the long haul because emerging economies offer so much growth.

With China’s e-commerce companies reporting huge sales gains, now is a good time to get in on it.

In fact, the best way to invest in a fund like this is to buy some now and then add steadily to your holdings over time.

This is the kind of investment that will reward patient long-term investors who see the obvious – that China’s economy and its e-commerce sector will only grow in importance in the years ahead.

P.S. I hope you all are Liking and Following me at Facebook and Twitter. We’ve got a great community of friends, colleagues and readers there who are eager to make big money in tech stocks – today.

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2 Responses to While Wall Street Writes Off China, We’re Going to Cash In

  1. Forrest Wyman says:

    Dear Michael: Thanks for your enthusastic coaching in helping us increase our wealth. To sidestep the high price of Aliababa, for those of us who didn’t get in earlier, what would you say about “investing” in 1-year or 2-year call options in NYSE:BABA and if what would be a reasonable option-chain gap above current prices to maximize leverage?

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