Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

How To Double Your Money In Chinese Internet Stocks

By Boris SchlossbergStock MarketsSep 15, 2021 07:51AM ET
How To Double Your Money In Chinese Internet Stocks
By Boris Schlossberg   |  Sep 15, 2021 07:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
  • The autocratic moves by CCP have cast a pall on Chinese internet sector
  • Chinese internet companies remain the most innovative in the world
  • The only way to get prudent exposure to the trade is via long term call spreads in #KWEB

Everyone knows that the Chinese word for crisis is made up of two characters that mean danger and opportunity. Nowhere is this combination more evident than in the Chinese internet stock sectors which has taken a severe beating this year due to new government regulation that has put the whole industry on notice.

Chinese internet stocks which include such giants as Alibaba (NYSE:BABA), Tencent (OTC:TCEHY) and JD (NASDAQ:JD) are off more than 40% off their highs and the key question for investors is whether the current markdown is an opportunity or simply a sign of more danger ahead.

It is absolutely clear that the series of decrees by the Chinese Communist Party over the summer has permanently changed the way Chinese internet companies will do business going forward. The sector which perhaps was the most market driven in the Chinese economy will now have to be subject to serious oversight and the government will likely exercise far greater control over the sector’s valuable reams of consumer data. Perhaps most damaging of all is that Chinese technology companies will no longer be allowed to raise capital on foreign markets with Hong Kong (whose freedoms have been greatly curtailed by the Mainland authorities) serving as the only semi-external source of funds for Chinese multinationals.

The irony of the events of the past summer is that the Chinese internet sector is perhaps the most vibrant and advanced in the world. Chinese consumers live in an essentially purely digital economy with instant payment settlements and a vast array of on demand services from apps like WeChat that are completely unavailable to western consumers. The size and scope of the sectors is also unique as the user base just in China dwarfs that of many US multinational giants. The Chinese internet sector is also far more innovative  than its western counterparts and does not rely solely on subscription and advertising revenue to monetize its business. It is for these reasons that many investors believe that the sector is now a bargain with companies like Alibaba for example trading at one third the valuation of Western counterparts. 

There is no doubt that the autocratic directives of the CCP have permanently damaged the valuation prospects of the sector. It is very likely that the whole sector will now trade at a lower multiple than similar companies in the rest of the world. The sector will also likely face further regulation. But while the CCP has clearly communicated that it will exert more control over the day to day affairs it is unlikely that the Chinese leadership will seek to take ownership of these assets and as long as Chinese internet companies are allowed to operate their cashflow rich franchises in social, media, fintech and e-commerce will continue to grow even with restrictions on foreign capital raises. The Chinese internet companies have already proven themselves to be great innovators in the space and as long as they face no further curbs to their business they will likely continue to reward investors with above average growth.

Still the political uncertainties in China and the opaque nature of CCP decision making process are too risky for long term investing. That is why the best way to play the rebound in Chinese internet stocks is through the KWEB ETF which allows investors to participate in the trade with a single click. Furthermore the most intelligent way to buy this dip is through a long term option call spread. For example with KWEB now trading at $49 the June 22 48/54 bull spread costs $3 to make $6. That’s a possible double on the trade with a reasonable investment target on the underlying, limited risk and ample time to let the market revalue the sector.

How To Double Your Money In Chinese Internet Stocks

Related Articles

Michael Kramer
NASDAQ Could Fall Another 13% By Michael Kramer - Jan 28, 2022 28

This article was written exclusively for Investing.comThe NASDAQ Composite has fallen sharply to start 2022, down nearly 13%. But don't expect the index to race back to record...

How To Double Your Money In Chinese Internet Stocks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email