Market Overview

Tumbling Internet Shares Forcing One China ETF Lower

Tumbling Internet Shares Forcing One China ETF Lower

Shares of the PowerShares Golden Dragon China Portfolio (NYSE: PGJ) are off 2.7 percent today despite strong moves in other China ETFs and it looks like weakness in Chinese Internet is to blame.

Shares of Baidu (NASDAQ: BIDU), PGJ's second-largest holding with a weight of 6.73 percent, are off 6.2 percent on volume that is close to double the daily average. The decline in Baidu, often referred to as the Google (NASDAQ: GOOG) of China, may have been prompted by an Investor's Business Daily piece that said Qihoo 360 (NYSE: QIHU) is gaining share in the Chinese Internet search market.

However, that piece notes Qihoo's increased market share has come at the expense of Google and that since Qihoo launched its search engine in August, Baidu has also boosted its share of China's Internet search market. Qihoo is off nearly three percent today on volume that is close to double the daily average. That stock is PGJ's tenth-largest holding with a weight of nearly four percent.

The weakness in the Internet search names has permeated China's Internet sector, punishing PGJ in the process. Shares of Sina (NASDAQ: SINA), whose Weibo service is known as China's equivalent of Twitter, are off more than eight percent today and have touched a new 52-week low. On double the average daily turnover, NetEase (NASDAQ: NTES), the maker of online games, is off 4.5 percent.

Sina and NetEase combine for 11.5 percent of PGJ's weight. The weakness has even made its way to travel names as (NASDAQ: CTRP) is plunging 10 percent on above average volume. The online travel reservations firm is another PGJ top-10 holding, accounting for 4.72 percent of the ETF's weight.

PGJ's Tuesday woes stand in stark contrast to other major China ETFs. For example, the iShares FTSE China 25 Index Fund (NYSE: FXI), the largest China ETF by assets, is up more than one percent. FXI has no exposure to Chinese technology or Internet names. The iShares MSCI China Index Fund (NYSE: MCHI) holds 138 stocks compared to just 26 for FXI, but MCHI's technology and Internet exposure is minimal. That has helped the FXI alternative gain nearly one percent today.

The Guggenheim China Small-Cap ETF (NYSE: HAO), which features a 6.53 percent allocation to technology names, is also modestly higher today.

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