Chinese technology stocks have been stuck in a downtrend since the big sell-off in mid-Feb 2021, but appear to be breaking out last week. Could this be the start of a bull run in Chinese tech stocks?
The Hang Seng Tech Index is currently at 8,235 points, still lower than the most recent peak on 1st June of 8,305 points. However, there are green shoots appearing when you look at individual stocks. But first, let’s get a broader picture of the market and our benchmark Hang Seng Tech index.
Also, watch my video reviewing the Lion-OCBC Securities Hang Seng Tech ETF:
U.S. 10-year Treasury bond yields have been receding further, currently below 1.6%. So far the Federal Reserve has been pretty effective at managing inflation fears and expectations of tapering and higher interest rates. As I mentioned before in my previous update, if inflation is indeed transitory as the Federal Reserve suggests, that’s good news for high growth tech stocks to continue powering higher.
Looking at the individual stocks that make up the top 10 of the Hang Seng Tech index, a few seem to are breaking out from recent downtrends. Notable ones are Alibaba (HKEX:9988), Meituan (HKEX:3690), Kuaishou (HKEX:1024), and Sunny Optical (HKEX:2382). Refer to charts below.
Should the headwinds from inflationary fears and expectations for higher interest rates continue to ease, we might see Chinese tech stocks continue higher into hopefully clear skies ahead.
However, risks still abound. Although regulatory risks have recently somewhat abated, it is still a very real risk for Chinese tech stocks. The recent spate of Chinese tech senior management suddenly stepping down raises eyebrows. It started infamously with Alibaba Founder Jack Ma, but has now also spread to ByteDance Founder Zhang Yiming, and Pinduoduo Chairman Colin Huang. Meituan Chairman and CEO Wang Xing has also drawn Chinese authorities’ fury after posting a controversial poem.
At these prices however, these risks might have already have been priced in. Investors might also be thinking that the worst of regulatory scrutiny might be over, and are already looking ahead to Chinese tech stocks continuing to build on strong revenue and earnings growth.
Some Wall Street analysts are also turning positive towards Chinese tech, which seem to be one of the few undervalued plays now in a market deemed overvalued after a strong bull run since the March 2020 pandemic-induced crash.
I believe Chinese tech stocks are still attractive at these levels, despite recent gains. If Chinese stocks can continue their recovery and upward momentum next week, we could finally see early innings of a bull run in Chinese tech stocks which have been laggards.
A word of caution though. Investing in Chinese tech stocks is a very high risk affair. Have a plan and stick with it. If things go south, make sure you have an exit strategy otherwise you might get burnt crispy.
One way to get exposure to Chinese tech stocks is through the Hang Seng Tech ETF (SGX:HST and HKEX:3067). Instead of having to spend hours on researching the best Chinese tech stocks, this ETF will allow you to gain exposure to a diverse package of 30 Hong Kong-listed Chinese tech companies in one investment.
For Singapore-based investors, you can also set up automatic monthly investments into HST through the OCBC Blue Chip Investment Plan (BCIP).
Alternatively, investors can also gain exposure through the U.S.-listed Invesco China Technology ETF (NYSE:CQQQ).
Index Update
For a quick introduction to the Lion-OCBC Hang Seng Tech ETF (SGX:HST), refer to this post. I’ve also compiled a simple guide to the Hang Seng Tech ETF on this page.
Some important updates to the Hang Seng Tech Index to highlight since my last update on 3rd June.
Autohome (HKEX:2518) and Bilibili (HKEX:9626) were added and 3 stocks were removed, bringing the index back to 30 constituents.
As usual, no change in the top 10 constituents except for their rankings. Each constituent stock is market cap weighted and capped at 8% weight, so the index holdings of Xiaomi might have to be reduced.
What I’ve Been Doing
I’m looking to purchase another tranche of SGX-listed HST next week as part of my plan to dollar-cost-average (DCA) manually every month. I’ll probably buy through Tiger Brokers, since are still offering ‘No Minimum Charge per Order’ commission until 31 December 2021.
If you want to open a Tiger Brokers account, you can use my referral link. You will get the welcome gifts below, subject to terms & conditions. I will also receive some referral rewards for full disclosure. Once you sign up, you can also refer your friends to get referral rewards too.
Hope this post was useful if you’re considering gaining exposure to Chinese tech stocks. Subscribe to my blog if you would like to get more of these type of updates.
Disclosure: I’m long HST, Alibaba and Tencent.
Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.
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