The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
The new coronavirus from China has predictably saddled equities in the world's second-largest economy with recent losses. However, there were some signs of upside for the week ending Feb. 14 as the MSCI China Index gained nearly 3%.
What Happened
Chinese internet and consumer cyclical stocks, such as Alibaba BABA, Baidu BIDU and JD.com JD, haven't been immune to coronavirus pressures, but an interesting scenario is emerging.
Month-to-date, the Direxion Daily CSI China Internet Index Bull 2X Shares CWEB is up about 20%, making it one of Direxion's best-performing leveraged exchange traded funds since Feb. 1.
CWEB attempts to deliver double the daily returns of the CSI Overseas China Internet Index.
Why It's Important
It's certainly plausible to think that Chinese internet stocks would be decked by the coronavirus outbreak, but some analysts view CWEB components as possible beneficiaries from the illness on a longer-ranging basis.
“We think the main long-term beneficiaries of the coronavirus outbreak are Chinese Internet companies with online products and services that are not yet well penetrated, as they could see an increase in users,” said Morningstar in a recent note. “This includes companies offering online education, fresh food delivery, and office tools, which are likely to see faster adoption rates.”
Those sentiments are applicable to the likes of Alibaba and JD.com, which combine for over 16% of CWEB's underlying index. Tencent TCEHY, the second-largest component in CWEB's index, was also highlighted by Morningstar as a valid coronavirus play.
What's Next
“Drags on overall consumer confidence are short term and are likely to be offset by increased use of online services in the long term for Alibaba and JD.com,” said Morningstar. “Alibaba should see benefits outside of their bread-and-butter businesses because of faster adoption of other businesses.”
Another way of looking at the coronavirus situation as it pertains to Chinese internet names is that it should be short-term in nature and when it's put to rest, there will be near-term benefits for some of the aforementioned stocks, meaning CWEB is an ETF for active traders to monitor in the coming weeks.
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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
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