What an Apple/China Mobile Deal Would Mean for ETFs

by on August 19, 2013 | ETFs Mentioned:

Apple (AAPL) has long been one of the most talked about securities on the market, as its meteoric rise took the investing world by storm. But lately, analysts seem to be discrediting the technology giant, fearing that the well is running dry and the firm is failing to find new ways to innovate. This sentiment has spooked a number of investors who would like to see Apple make more strides to increase its reach and grow revenues.

Enter China Mobile (CHL), a Hong Kong-based telecom firm that provides service to hundreds of millions of Chinese citizens. As of July 2013, the company had just over 740 million subscribers under its belt, making it the largest telecom firm in the world. It also is one of the few wireless carriers in China that does not carry Apple products; a market in which Apple desperately needs to increase its stake. That may all change, however, as Apple CEO Tim Cook recently met with Chairman Xi Guohua of China Mobile to discuss a possible collaboration.

Why Apple Needs China Mobile

Nearly 80% of China’s internet users currently access it using their mobile devices, and that figure is still growing. “Morgan Stanley estimates China’s mobile Internet market could more than treble to around $30 billion by 2015″ write Paul Carsten and Lee Chyen Yee. That presents a sizeable market with a strong opportunity for increasing Chinese sales, something that has weighed on Apple as of late [see also 3 Tech ETFs with 20% Holdings in Apple (and 3 with less than 2%)].

Apple’s last quarterly earnings showed that China accounted for 12% of sales, down from 19% in the quarter prior. Any deal between Apple and China mobile has the potential to boost both companies. Apple would likely see sales surge as its products would now be available to 740 million new customers, while China Mobile would be able to offer users a better mobile experience and attract more 3G users, which has been something of an issue for the telecom provider in the past.

The move would solidify Apple’s emerging market presence and also add a handsome market through which the company could continually market new products and devices. Though nothing has been officially confirmed, the potential deal has a number of investors on the edge of their seats as two of the world’s largest firms look to enter business together [see also When Apple (AAPL) Swings, Tech ETFs Follow].

Investing In The Deal

Any announcement of an official deal would likely send both stocks higher for a trading session or two, but it also has high long-term potential. Both companies would likely be able to report stronger revenues and in increased user-base that would keep investors bullish about their respective stocks. Below, we outline several ETFs that stand to gain should an Apple-China Mobile transaction go through.

  • BLDRS Emerging Markets 50 ADR Index Fund (ADRE, B): This fund tracks the 50 largest emerging market ADRs, granting a 6.8% weighting to China Mobile, holding it second to only Taiwan Semiconductor Manufacturing.
  • BRIC ETF (EEB, C+): This fund invests in the largest companies to be based in the BRIC regions of the world. China Mobile is the top holding, garnering just under 9.7% of the fund’s assets.
  • QQQ Fund (QQQ, B+): One of the largest ETFs in the world, QQQ holds Apple in the top spot, with a weighting of nearly 11%. The Nasdaq has already charged to highs not seen since the tech bubble and this deal has the potential to help drive it even further.
  • Technology Select Sector SPDR (XLK, A): State Street’s technology SPDR gives Apple a 12.4% weighting, making it the largest holding of this $11.4 billion fund.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.