Profit from the World's Largest E-Commerce Market
Companies / Internet Aug 11, 2014 - 04:49 PM GMTBy: Money_Morning
William Patalon III writes: Mainland China has leapfrogged the United States to become the biggest e-commerce market on Earth.
We wanted you to hear about some of the best new opportunities.
So you can reap the biggest payoffs...
These Will Be Some of the Biggest Winners
As of early last week, we'd pulled down gains of 10% with NetEase Inc. (Nasdaq ADR: NTES), 28% with Qihoo 360 Technology Co. Ltd. (NYSE: QIHU), and 37% with Baidu Inc. (Nasdaq ADR: BIDU).
But the biggest winner is Bitauto Holdings Ltd. (NYSE ADR: BITA), a leading e-commerce player focused on China's surging auto market.
Radical Technology Profits Editor Michael Robinson told us about Bitauto in the February Private Briefing report "Detroit + Silicon Valley + Beijing = One Heck of a Profit Play."
By mid-day Friday, Bitauto shares had jumped to $62.11. That gave us a peak gain of 109% from our recommendation price of $29.66. And it makes Bitauto the 32nd recommendation to give you a triple-digit gain (double or better) since we launched Private Briefing back in August 2011.
"When you look at this stock, it is capitalizing on three intersecting trends - each of which is strong on its own," Michael said earlier this week. "And when you combine them - and find one company or one stock that is positioned to benefit from all three - well, that's one very powerful profit play. And that's just what we have with Bitauto."
The three "intersecting trends" Michael referred to are easy to identify. The first is China's overall economic growth. The second is the strong outlook for that country's auto market. And the third is the Asian giant's surging e-commerce market.
And over time, China's e-commerce market is only going to get bigger.
Let's take a look.
Going and Growing
A number of China-listed shares hit new highs early last week because of expectations that the Red Dragon's economy is heating up. The benchmark Shanghai Composite Index rose 7.48% in July, while its counterpart Shenzhen Component Index advanced 8.36% - the biggest monthly increases in two years.
The non-manufacturing Purchasing Managers' Index was 54.2 in July, down slightly from 55 in June, according to the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing. Readings of 50 and above represent an expansion.
Investors were showing optimism that the government is accelerating state-owned enterprise reform and relaxing rules to help brokerages free up capital for expansion.
In a forecast last week, the International Monetary Fund (IMF) predicted that China's growth rate will slow to 7.1% next year from a projected 7.4% this year. It based those predictions on the assumption that Beijing will continue to transition from an all-export economy to one that's more focused on domestic consumer demand.
Those growth rates are down substantially from where they were a decade ago. But they're still double the U.S. rate of growth. (Even the higher-than-expected U.S. growth rate of 4% for the second quarter was "padded" - 1.7% of that was due to "refilling the channel," not to "sell-through" to the consumer.)
Analysts continue to worry about speculation in China's real estate market, the potential for a banking crisis, and the need for enterprise reform. So expect that country to be volatile. Even so, the higher growth rate represents opportunity, meaning we want to have some money deployed there.
And let's face it: Given what happened in this country with housing, credit-default swaps, and credit just a few years ago, even developed markets aren't without risk.
Mashing the Accelerator
China has been the world's biggest auto market since 2009. And the country's emergence as a global player with a brand-conscious urban class will serve to rev up sales over the next few years.
In China last year, consumers and businesses purchased 22.1 million new cars, SUVs, light trucks, and vans - 42% more than the 15.6 million sold in the United States.
China is currently home to nearly one out of every five folks on Earth. And because its middle and upper classes continue to grow in number, you can expect auto sales to keep surging, even if China's "ownership rate" stays below its developed-market counterparts, Liu Shijin, vice minister of the Development Research Center of the State Council, told China Daily newspaper.
"My logic goes like this: Now every 1,000 U.S. people have 800 vehicles, and 1,000 Europeans have 600 vehicles," Liu said. "Even if we Chinese are frugal and 1,000 people own 400 vehicles from 2018 to 2020, that would be at least 50 million" new auto sales a year.
And that means China's auto market won't peak for another four to six years.
Going Digital
With Alibaba Group Holding Ltd. (NYSE: BABA) - China's No. 1 e-commerce player - scheduled to go public soon, investors are suddenly seeing the potential of that country's online marketplace.
And we're very early in that growth process.
Indeed, as is the case with China's auto market, that country's e-commerce market is now the biggest in the world.
Analysts at the Australia and New Zealand Banking Group Ltd. (OTCMKTS ADR: ANZBY) just reported that China last year leapfrogged the United States to become the No. 1 online marketplace in the world.
Online-shopping spending in China reached $298 billion last year, easily surpassing U.S. sales of $263 billion. According to German research firm yStats, China's consumer e-commerce market soared more than 60% in 2013.
Despite that torrid growth, China is still very much an online market in development - meaning the profit opportunities are huge. For instance, the impact of social media in China is four times what it is here in the U.S. market.
How to Profit
Taken together, Michael says these three trends should continue to power Bitauto, which provides car pricing and marketing information, reviews, and feedback.
"Bill, it's clear that China is a nation in the midst of a massive transformation based on several interlocking factors," he said. "First, of course, is the long-term move from communism to private enterprise. That alone is greatly raising incomes and standards of living. Second, we're seeing how interested the government is in moving away from an emphasis on state-sponsored infrastructure spending to one that relies more on open markets. And the third big catalyst is the shift away from the provinces to the big cities. We're talking about a historic migration from the rural parts of China to that country's big cities. Beijing is in the midst of a high-rise construction boom. A video of a 30-story hotel that went up in 15 days in late 2011 has received 5.7 million hits on YouTube. With 1.3 billion people, China needs a lot of cars. And the rising standard of living that we're seeing in China's urban centers is stoking demand for all those new vehicles. Bitauto is one of the single best ways to profit from this powerful push."
The company reports quarterly earnings this week. In its last report, Bitauto said it earned $0.18 a share - $0.02 ahead of estimates. Revenue advanced 47% to reach $56.9 million - well ahead of the consensus of $54.3 million.
Analysts expect the company to earn $1.56 a share for the current full fiscal year.
Zacks Equity Research recently upgraded the shares.
We like the long-term outlook for the shares. Given the strong run so far this year - and the fact that China's stock market in general has been hot - we recommend that first-time investors in this stock break their purchases up into two or three tranches.
If you like China's e-commerce prospects - but want a bit more diversification - consider the KraneShares Trust (Nasdaq: KWEB), an exchange-traded fund (ETF) that debuted in July 2013.
We like this fund for several reasons. First, with the much-touted Alibaba initial public offering (IPO) headed our way, we see the KraneShares fund as a way to play what's expected to be a record-setting deal.
In a recent appearance on CNBC's popular "Fast Money" segment, KraneShares managing director Brendan Ahern said his company can "fast track" Alibaba into its lineup and add the stock following the Chinese company's 11th day of trading.
We'll continue to follow all of these.
Source : http://moneymorning.com/2014/08/11/profit-from-the-worlds-largest-e-commerce-market/
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