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Alibaba Tumbles on Weak Earnings Report: ETFs in Focus

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Chinese e-commerce giant Alibaba Group (BABA - Free Report) disappointed investors with its second-quarter fiscal 2022 results before the opening bell on Nov 18. The company missed both estimates for the first time in two years as Beijing's ongoing crackdown on the tech sector continued to bite. Alibaba also lowered its fiscal year outlook.

Following the weak earnings, shares of Alibaba tumbled more than 11% on the day, putting the ETFs with the largest allocation to the Chinese e-commerce giant in focus. These include Invesco BLDRS Emerging Markets 50 ADR Index Fund (ADRE - Free Report) , iShares MSCI China ETF (MCHI - Free Report) , Franklin FTSE China ETF (FLCH - Free Report) , SPDR S&P China ETF (GXC - Free Report) and KraneShares CSI China Internet Fund (KWEB - Free Report) (see: all the Technology ETFs here).

Alibaba Earnings in Focus

Earnings of $1.74 per ADS missed the Zacks Consensus Estimate of $1.87 and declined 38% from the year-ago earnings. Revenues climbed 29% to $31.44 billion but fell short of the consensus mark of $31.92 billion. The dismal performance is due to increasing competition, slowing consumption in China and a regulatory crackdown.

The company’s cloud computing revenues grew 33% year over year, while the core e-commerce business rose 31%. Annual active consumers globally increased 1.24 billion for the 12 months ended Sep 30, 2021, marking an increase of 62 million from the 12 months ended Jun 30, 2021. This includes 953 million consumers in China and 285 million consumers overseas, representing a quarterly net increase of 41 million and 20 million, respectively.

Alibaba projects its fiscal 2022 revenue to grow 20-23%, its slowest pace since its 2014 stock market debut. This is down from the previous forecast of 30% in May.

ETFs in Focus

Invesco BLDRS Emerging Markets 50 ADR Index Fund
 
Invesco BLDRS Emerging Markets 50 ADR Index Fund offers exposure to 50 emerging market-based depositary receipts by tracking the S&P/BNY Mellon Emerging Markets 50 ADR Index. About 41% of the portfolio is allotted to Chinese firms, with Alibaba occupying the second position at 18%. Taiwan, India and Brazil round off the next three spots in terms of country exposure. Invesco BLDRS Emerging Markets 50 ADR Index Fund has the largest exposure in the consumer discretionary and information technology sectors, with at least 29% share each, while financials and communication services round off the next two spots.

Invesco BLDRS Emerging Markets 50 ADR Index Fund has amassed $191.7 million in its asset base while trading in a lower volume of about 10,000 shares. ADRE charges 30 bps in fees per year and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

iShares MSCI China ETF

iShares MSCI China ETF targets the Chinese stock market and follows the MSCI China Index. Holding 612 securities in its basket, Alibaba takes the second spot with an 11.4% share. From a sector look, about 33.4% of the portfolio is allotted to consumer discretionary, while communication (18.5%) and financials (13.3%) round off the next two spots.

iShares MSCI China ETF has amassed $6.6 billion in its asset base while charging 59 bps in annual fees. Volume is also solid as it exchanges nearly 4.4 million shares daily on average. The ETF has a Zacks ETF Rank #5 (Strong Sell) with a Medium risk outlook (read: Will China ETFs Suffer From Weak Economic Data Releases?).

SPDR S&P China ETF

SPDR S&P China ETF follows the S&P China BMI Index and seeks to provide exposure to the publicly traded companies domiciled in China that are available to foreign investors. It holds 897 stocks in its basket, with Alibaba taking the second spot at 8.9%. SPDR S&P China ETF  has the largest allocation in consumer discretionary at 29.4%, while communication services and financials round off the next two spots.

SPDR S&P China ETF has amassed $1.7 billion in its asset base and sees an average daily volume of 49,000 shares. The fund charges investors 59 bps in annual points and has a Zacks ETF Rank #5 with a Medium risk outlook.

KraneShares CSI China Internet Fund

KraneShares CSI China Internet Fund tracks the CSI Overseas China Internet Index, which consists of China-based companies whose primary business or businesses are focused on Internet and Internet-related technology. It holds 53 securities in its basket, with Alibaba occupying the fourth position with an 8.1% share (read: Is the Time Ripe to Buy Beaten-Down China ETFs?).

KraneShares CSI China Internet Fund has amassed $9.7 billion in its asset base and charges 70 bps in annual fees from investors. KWEB trades in an average daily volume of 12 million shares and has a Zacks ETF Rank #5 with a High risk outlook.

Franklin FTSE China ETF

Franklin FTSE China ETF targets large- and mid-sized companies in China and follows the FTSE China Capped Index. It holds a broad basket of 927 stocks, with Alibaba taking the second spot at 10.8%. Franklin FTSE China ETF is skewed toward consumer discretionary at 31.6% allocation while communication services and financials round off the next two sectors with double-digit exposure each.

Franklin FTSE China ETF charges investors 19 bps in annual fees. FLCH has amassed $135.1 million in its asset base and sees an average daily volume of 33,000 shares. It has a Zacks ETF Rank #5.

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