China’s economy continues its recovery, albeit unevenly. It is trying to put behind the after-effects of a real estate development crisis that hit the country a few years ago. Nonetheless, the Direxion Daily CSI China Internet Bull 2X Shares (CWEB) continues to push higher as the second largest economy tries to revitalize economic growth.
The fund comprises top internet company names like Tencent Holdings and Alibaba Group. It is up almost 8% for the year. If more stimulus measures by China’s government can make a tangible impact on its economy, the fund could rocket higher.
A robust technology sector will help keep China’s economy from spinning out of control. It was less than five years ago when the country’s government looked to heavily regulate large players in the tech industry from gaining too much power. But now, their strength in the economy is imperative for China to maintain its growth trajectory.
“In the years following the 2007-09 financial crisis, China became the largest emerging market. By the end of 2020, Chinese internet companies Alibaba BABA and Tencent TCEHY were among the 10 largest public companies globally,” said Morningstar Indexes strategist Dan Lefkovitz. “Then came a government crackdown, which saw leading companies’ market values slashed. At the macroeconomic level, China was widely anticipated to bounce back strongly in 2023 from “Zero Covid” lockdowns, but a property-market downturn and other woes undermined recovery.”
Per its fund description, CWEB provides investors with 200% of the performance of the CSI Overseas China Internet Index. That index consists of companies that focus on the internet and internet-related sectors, as defined by the index provider, and are listed outside of mainland China, including in Hong Kong.
Broad Economy Still a Factor
While tech can continue to prosper, the broad economy will still remains a factor in more gains for CWEB. Just as investor interest was flowing back into China funds again, factory activity slowed during the month of May,. That potentially stifed a market rally in China equities.
“Factory activity in China slowed more than expected in May, to a three-month low, reflecting the significant structural headwinds facing the world’s second-largest economy amid recent measures from Beijing to support a recovery in the property market, ” a South China Morning Post article said.
The MSCI China index reacted to that news negatively. It dropped from its peak after reaching a 10% gain in May. However, it could present traders with a buying opportunity should China continue its trend higher.
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