CWEB: Beating China’s Internet Game (NYSEARCA:CWEB) | Wbactive

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By: Alex Rosen

summary

The Chinese economy appears to be on a downward trend, particularly with Xi Jinping’s tenure for a third term, who appears to be squeezing dissent, thus stifling economic growth. Because of the strong dollar and the global supply chain problems, the Chinese manufacturing sector faces a serious decline. As a result, sectors that produce less tangible goods like digital technology appear poised to take over the dominant future industries for the Asian giant.

strategy

Direxion Daily CSI China Internet Index Bull 2X Stocks (NYSEARCA:CWEB) follows KraneShares CSI China Internet ETF (KWEB) step by step in holdings, with the only caveat that CWEB has twice the exposure. This model really buys into China’s digital technology sector, with a 10% cap on each individual holding. The fund is also rebalanced semi-annually. The good news is that investors who are genuinely optimistic about China’s digital sector have an opportunity to go all out here.

Proprietary ETF Classes

  • Attack/Defense: Attack
  • Segment: Technology/Internet
  • Sub-Segment: China Large Cap Blue Chip
  • Correlation (vs. S&P 500): Low
  • Expected volatility (vs. S&P 500): High

diagram
Data from YCharts

inventory analysis

CWEB has shown surprisingly high volatility for a large-cap blue-chip ETF, with a 60% turnover rate. However, as long as Alibaba (BABA) and Tencent (OTCPK:TCEHY), among other major Chinese internet companies, anchor holdings, the model should remain consistent.

Strengthen

Over the past three decades, China has evolved from a manufacturing hub into one of the most advanced technology sectors in the world. Despite the recent macroeconomic shocks to China’s economy, it remains and will continue to be one of the world’s economic superpowers, as it is still an emerging hegemon that has yet to peak its supremacy. This confidence in China’s rise is based not least on the enormous growth of the digital sector.

weaknesses

CWEB essentially put all their eggs in one basket. The lack of global diversification makes it particularly vulnerable to trends in the Chinese market. Right now we are seeing a great example of this as the political issues in China are heavily affecting sectors that shouldn’t be affected. However, if you want to put all your eggs in one basket, China is a good choice.

occasions

Currently, Chinese markets are in deep turmoil as investors await the outcome of the Chinese Communist Party Congress, which is held every five years. Xi Jinping has clearly consolidated his power and has yet to clarify the direction in which he will take China, whether it be a continued crackdown on dissent that is stifling the flow of capital out of Hong Kong or a full-scale invasion of Taiwan. Or, on the other hand, maybe it was just saber-rattling to secure the full support of China’s old guard. However, out of chaos comes order, and so I think that whichever direction it goes, China will continue to lead in the digital sector.

threats

In the long term, it is very difficult to detect exogenous threats as China has worked diligently to ensure its digital sector is at the top of the food chain. In the short term, the greatest threats to CWEB are purely endogenous. For example, the Russian energy sector was also considered bulletproof until the Russians started firing bullets. The biggest short-term threat would be if China decides to invade Taiwan. This could significantly upset the balance of power and then all bets will be void.

Proprietary Technical Reviews

  • Short term rating (next 3 months): Sell
  • Long-Term Rating (next 12 months): Sell

Conclusions

ETF Quality Report

CWEB is made up of some of China’s strongest technology companies. In an investment landscape riddled with landmines, the simplicity of the CWEB model makes it a very reliable option that should be able to maintain its position regardless of external factors.

ETF investment opinion

For all of the above reasons, we value KWEB as a good addition to a broader portfolio. However, CWEB is superfluous and completely unnecessary. If you want to get involved in the Chinese digital sector, check out KWEB. If you’re looking to wrap yourself in a digital Chinese blanket, CWEB might be the ETF you’ve been looking for.

Editor’s note: This article covers one or more securities that are not traded on a major US exchange. Please be aware of the risks associated with these stocks.

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