Bitcoin and Chinese Internet stocks have left Wall Street in the dust, so far, in 2017, making some investors multi-millionaires quickly. At least investors who poured money into them early.
The Bitcoin Investment Trust Shares (GBTC) have soared 485.28%. The KraneShares SCI China Internet ETF (KWEB) has gained 52.10%.
Meanwhile the S&P 500 shares have gained a “modest” 10.78 percent.
|KraneShares SCI China Internet ETF||52.10%|
|Bitcoin Investment Trust Shares||485.28|
|SPDR S&P 500 (SPY)||13.58|
Source: Finance.yahoo.com 8/8/2017
Bitcoin is an exotic asset that comes with big advantages — a better hedge against global uncertainties than conventional hedges like gold; a convenient medium of payment worldwide; and a limited supply — 21 million.
Meanwhile, there’s investor hype. More and more investors are becoming familiar with the digital currency, and can use investment trusts like GBTC to conveniently participate in the market.
Adding to the hype is an ultra-low interest rate environment (which has lowered the cost of holding all these four-digit trading Bitcoins).
China’s Internet stocks have something exotic, too, feeding investor hype. They provide investors an opportunity to own shares in innovative companies that have climbed into the world’s list of smartest companies — as indicated in a recently published MIT Technology Review’s annual listing which surveys both small and large companies based on their ability to innovate and execute.
Two of these companies that made it to the list this year are Tencent (8th position) and Alibaba 41th.
It’s the second time the two companies appear on the list — Tencent (TCEHY) occupied the 15th position in 2015, while Alibaba (BABA) occupied the 4th position.
Both Tencent and Alibaba have been developing innovative technologies and effective business models to monetize them.
Tencent Holdings has managed to transform itself from a chat software developer to an investment holding company and the world’s largest company when it comes to on-line game revenues, according to Newzoo. While faddism comes and goes in the gaming industry, Tencent has demonstrated that it can adopt and adapt very quickly to win the next game.
Alibaba continues to grow by leaps and bounds, as evidenced by its recent earnings report, which showed revenues growing at 98.50% year-on-year. Its growth has been fueled by a number of advantages: scale, scope, networking, location, and good government relations, as discussed in previous pieces here.
|Company||Total Revenue (ttm)||Operating Margins||Quarterly Earnings Growth|
Source: Finance.yahoo.com 6/29/2017
Still, both Tencent Holdings and Alibaba — which are among the top KWEB holdings — trade at “reasonable” valuations for young technology companies — see table. The same is true for Baidu Inc., Sina Corp, and Autohome. But not for CTRIP.com and Tal Education, which trade at astronomical valuations.
KraneShares SCI China Internet ETF Top 10 Holdings
|JD Com Inc.||—|
|58 Com Inc.||—|
That’s why investors should be very careful in piling up new funds into KWEB. Besides, Chinese Internet stocks have been crushed before after disclosure of questionable accounting standards.
Disclosure: I own shares in TCEHY
My recent book The Ten Golden Rules Of Leadership is published by AMACOM, and can be found here.