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China Internet ETFs for Exposure to Growing Mobile Gaming


As the mobile gaming industry in China grows on rising demand from an emerging middle class, investors can take a targeted approach with China technology sector-related exchange traded funds.

For example, the KraneShares CSI China Internet ETF (KWEB) , which tracks a group of Chinese Internet stocks, has gained 20.9% since its August 1 debut.

There are more Internet users in China than there are people in the U.S., but Internet penetration in China is still low relative to developed markets. [China Stocks, Hong Kong ETFs Could Surge in 2014]

Looking ahead, J.P. Morgan expects China’s mobile games market cap to reach $20 billion in 2014, reports Shuli Ren for Barron’s.

J.P. Morgan points out that “mobile gaming names are valued at much higher multiples than PC gaming names” and the industry could represent 29% of PC gaming market next year.

The analysts, though, point out that investors are better off gaining exposure to the mobile gaming industry through distributors instead of developers because of the hit-or-miss nature of the gaming industry.

However, potential investors should be aware that distributors’ market shares are more concentrated. For instance, revenue share among the top 5 distribution channels rose to 80% in September 2013.

In the mobile gaming space, Baidu (BIDU) and Qihoo 360 Technology (QIHU) are the two largest mobile app stores in China. Additionally, Tencent has “over 570m accumulative mobile gamers as of November 2013, 40% of which have never played a PC game,” according to J.P. Morgan.

KraneShares’ KWEB ETF has significant holdings in each of the three companies, including 9.9% in Tencent, 8.9% in Baidu and 7.4% in QIHO.

The Guggenheim China Technology ETF (CQQQ) and Global X NASDAQ China Technology ETF (QQQC) also have exposure to the tech stocks. CQQQ has 12.5% in Biadu, 12.2% in Tencent. QQQC has 9.4% in Baidu, 9.3% in Tencent and 7.1% in QIHO. [ETF Chart of the Day: China Time]

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