Tag Archives: china

Forget Broader Retail; Bet On Online Retail ETFs

Retail earnings in the first-quarter earnings season and retail sales data for April were completely diverging, with the former mauling investor sentiment and the latter ushering in sweet surprises. The reason for this deviation was disappointing results from several traditional brick-and-mortar operators, while web-based shopping surged. In a nutshell, consumers’ purchasing pattern is changing. Department stores like Macy’s (NYSE: M ), Kohl’s (NYSE: KSS ), J.C. Penney (NYSE: JCP ), Nordstrom (NYSE: JWN ) and many others soured investor mood this earnings season. With this, while many started to wonder if consumers are running short of cash and doubt economic well-being, a 1.3% jump in retail sales (sequentially) in April cleared all misconceptions. As per Trading Economics , sales growth was witnessed in 11 out of the 13 major categories. Sales at motor vehicle and parts (up 3.2%), gasoline stations (2.2%) and non-store retailers (2.1%) were the major growth drivers. In fact, April retail sales beat economists’ forecast of a 0.8% rise . Online Retailers Crushing Earnings Estimates The online e-commerce behemoth Amazon (NASDAQ: AMZN ) came up with stellar Q1 results. The company trumped the Zacks Consensus Estimate on both lies by wide margins. Higher-than-expected results were credited to increased demand for quick-turnaround delivery and gadgets like the Kindle and Echo as well as a fast-growing cloud computing business. Another top player in this field, eBay Inc. (NASDAQ: EBAY ), beat on both lines. In fact, the company partnered with BigCommerce to benefit online retailers. Chinese e-commerce giant Alibaba Group’s (NYSE: BABA ) revenues came in higher than our estimate, though profitability was a letdown. This clearly explains online-retailers’ edge over the mall-based retailers. Inside the Rise of Online Retailers As of now, online retail sales make up one-tenth of total retail and about 5% of annual e-commerce revenue in the U.S. The space is developing fast with the increased usage of smartphones and other mobile Internet devices. As per Statista , in 2013, 41.3% of global internet users had purchased products online; the figure is expected to grow to 46.4% by 2017. More than the U.S., the real growth opportunities lay in the underpenetrated emerging markets. Forget Retail, Be Bullish on Online Retail This situation makes it crucial to have a pure-play online ETF. Amplify Exchange Traded Funds thus launched a new product, namely the Amplify Online Retail ETF (NASDAQ: IBUY ), about a month ago. Except this, it is hard to get targeted exposure to online retail. But several consumer discretionary and internet funds serve this idea to a large extent. Below, we highlight all of them in detail. IBUY in Focus This new fund holds about 44 stocks and charges 65 bps in fees. The fund is heavy on the U.S. (75%), followed by China (8%). The fund’s top three holdings are Overstock.com (NASDAQ: OSTK ), Del and Wayfair (NYSE: W ). No stock accounts for more than 3.39% of the portfolio. Emerging Markets Internet & Ecommerce ETF (NYSEARCA: EMQQ ) The fund gives exposure to the internet and ecommerce sectors of emerging economies. Its top three holdings are Tencent ( OTCPK:TCEHY ) (8.47%), Alibaba (8.36%) and Naspers ( OTCPK:NPSNY ) (6.8%). The fund charges about 86 bps in fees. Since Goldman sees a boom in the Chinese internet segment, this ETF is worth a look given its notable exposure to the Chinese e-commerce segment. Apart from these two, investors can also look at the First Trust Dow Jones Internet Index ETF (NYSEARCA: FDN ), with considerable exposure on Amazon (11.93%) and eBay (3.69%). Among the broad retail ETFs, the VanEck Vectors Retail ETF (NYSEARCA: RTH ) deserves a look, as it invests about 15.43% weight in Amazon. Original Post

6 Ways China Can Ruin Your Investments… And 1 Reason To Buy

China is the world’s second-largest economy in terms of gross domestic product (GDP), just next to the US. It has the highest population in the world and several manufacturing firms opt to set up shop there due to its cheap labor and supply materials. See more China used to enjoy double-digit growth over the past decades but last year, its growth slowed to 6.9% – the lowest in 25 years. Its stock market jumped by 150% in one year, but plummeted by 30% in just a few weeks and opened 2016 by falling another 7%. The International Monetary Fund projected that the economy’s decline will continue toward 2018, followed by a gradual recovery. I touched on this topic in my post in February: 2015-in-review-the-year-volatility-returned . And now, here are six ways the Asian giant’s slowdown can hurt investors. Beijing’s demand for oil will fall. China’s industrial production will fall as a result of declining factory activity. This will further add downward pressure to the price of oil, decimating profits and capital spending for oil firms listed on US exchanges. China’s demand for energy is one of the most important factors that drive the price of crude oil. In January, New York Stock Exchange-listed Exxon Mobil Corp. (NYSE: XOM ) slashed its forecast on China’s energy-demand growth toward 2025. Read more here Credit markets will be spooked . Chinese firms weighed by a ton of debt will default on their payments, spooking creditors, which will spike interest rates and ultimately drive the valuation of risk assets lower. China is the US’ largest creditor, accounting for around one-fifth of the total US treasury securities outstanding. Currencies will be in turmoil. Concerns over the health of China’s economy have already pushed capital away from its shores, pushing the yuan lower. This was only stopped by government intervention such as capital controls and a fixed exchange rate. Although the yuan is mainly traded on the mainland and is strictly supervised by the central bank, its offshore counterpart can be accessed by anyone. The onshore yuan is expected to continue its depreciation against the US dollar, hastening capital outflows and boosting demand for overseas assets. A weakening yuan amid a strengthening greenback could also increase political friction ahead of November 8 US Presidential elections. Currencies related to the Chinese economy will also experience the same fate. These include the Japanese Yen, the Korean Won and other emerging-market currencies. Investors may also opt to park their cash in safe government bonds or debts with low risk of default. Chinese imports of US goods will decline. An uncertain outlook on domestic demand will convince Chinese consumers to hold off on buying, especially US goods. China serves as the US’ biggest import partner, whose 2014 imports reached $466.75 billion or around 16.4% of the total import of the U.S. In comparison, the Asian country is also the US’ third largest export partner, just next to Canada and Mexico. Export goods and services amounted to $123.67 billion as of 2014, accounting for around 5.3% of total US exports. This means the trade balance of the U.S. vis-à-vis China is negative. A part of the deficit is funded by capital flow coming from China. A drop in Chinese consumer spending will hurt US exports, and if the US manufacturers failed to shift their product exports to other markets, this could result in a temporary decline in the US GDP. A two-percentage point decline in the growth of Chinese domestic demand growth translates into a 0.3-percantage point dip in the US GDP growth rate in 2015 and 2016, according to an estimate from the Organization for Economic Cooperation and Development (OECD). China may sell US Treasuries for stimulus. As a possible option in its stimulus program, the Chinese government may decide to sell US Treasuries that it has bought, driving treasury prices lower, yields and ultimately interest rates higher. Similar to Number 3, higher rates may result in a collapse in valuations of risk assets such as stocks. American unemployment rate may rise. US companies with significant exposure to the Chinese market will likely suffer from shrinking domestic demand in China. Shareholders and employees of American companies that derive majority of their revenues from China may also be affected. Some firms may consider cutting costs to lift profits, resulting in layoffs and higher unemployment rates. Despite these… The one reason to buy stocks despite the possibility of a hard landing in China is the Chinese government’s wherewithal. In a short span of time, it has blocked the exit of foreign capital, fixed exchange rates, and pacified financial markets, including stocks, currencies and properties. An added bonus is the fact that the US is the second biggest oil importer with around 7.2 million barrels daily as of April 2015. With oil prices falling due to a dim outlook on China’s GDP, trade balance deficit is affected in a positive way because of a decline in as the US’ cost to import oil. In summary: A slowdown in the world’s second biggest economy can hurt your investments because there will be lower demand for oil, creditors will be spooked, currencies will be in turmoil, there will be weaker demand for US goods, and interest rates and unemployment may go up. But on a positive note, the Chinese government has immediately taken measures to pacify financial markets, and the negative effects are offset by falling oil prices.