Alibaba Earnings Could Keep This ETF Rolling

Internet earnings season continues in a big way this week, and that includes an update from Chinese e-commerce giant Alibaba Group Holding Ltd BABA prior to the open of U.S. markets Tuesday.

As Benzinga reported Monday, Cantor Fitzgerald analyst Youssef Squali expected third-quarter results to come in line with Street expectations, driven by growth in active users and rising monetization amid resilient Chinese consumer spending.

Alibaba was expected to post a fiscal third-quarter profit of $1.13 a share on sales of $7.3 billion. If matched, the Chinese company would have posted profit and revenue growth of 21 percent and 46 percent, respectively.

If those numbers were topped in impressive fashion and Alibaba provided exciting upside guidance, that scenario could stoke some fire for the KraneShares Trust KWEB. As it is, KWEB, the benchmark China internet ETF, is up almost 8.5 percent since the start of 2017. KWEB's 2017 performance outpaces the largest China ETF by 340 basis points.

Alibaba And KWEB

Alibaba is KWEB's second-largest holding at 9.1 percent of the ETF's weight. Said another way, KWEB has one of the largest allocations to Alibaba of any ETF in the world.

Fundamentals continue boding well for the long-term KWEB bull thesis. For example, China has 22 percent of the world's internet users, according to KraneShares data. That is more than double the amount found in the United States, and at the end of last year, China's e-commerce market was worth $590 billion, making the $324 billion U.S. e-commerce market seem paltry by comparison.

China Exposure

“Many investors get their exposure to China through exchange traded funds (ETFs) that track indexes. The stocks theses ETFs buy are determined by the index provider. For a long time, index providers limited their China investment universe to about 150 Chinese companies listed in Hong Kong, excluding approximately 3,000 Mainland-listed Chinese companies and dozens of US-listed Chinese companies from their indexes,” said KraneShares in a recent note.

Here is a compilation of ratings and price targets of some sell-side analysts for the shares of Alibaba:

• Bernstein: Outperform/$117.

• Brean Capital: Buy.

• Evercore: Buy/$125.

• Macquarie: Outperform/$120.

• MKM Partners: Buy/$130.

• Raymond James: Strong Buy/$124.

• Standpoint Research: Accumulate/$113.

Investors have added $9.33 million to KWEB since the start of this year.

Image Credit: By Thomas LOMBARD, designed by HASSELL (architects)[1] (Own work) [CC BY-SA 3.0], via Wikimedia Commons