Chinese technology stocks taken a beating this past month since the sell-off starting mid-Feb, in line with US tech stocks. The Hang Seng Tech Index is down 21% from all-time high of 10,945 points on 17th Feb 2021. There’s definitely some blood in the streets especially in tech. So, is this an opportunity to jump into the Chinese tech sector?
This is an update to my earlier post on the Lion-OCBC Securities Hang Seng Tech ETF (SGX:HST/HSS).
Also, watch my video reviewing the Lion-OCBC Securities Hang Seng Tech ETF:
| Content: 1. Latest Top 10 Index Holdings 2. Index Performance 3. Kuaishou IPO 4. Risks 5. Closing Thoughts 6. Links |
Latest Top 10 Index Holdings
Notable changes in the Hang Seng Tech Index (which is the benchmark for the Hang Seng Tech ETF) since inception include the addition of Kuaishou via IPO (see more details below) and consequently Kingdee falling out of the Top 10. Also, Sunny Optical and Meituan have lower weightage which I’m guessing might be due to stock price declines.
With the recent volatility in Chinese tech stocks, changes in ranking and weightage doesn’t come as a surprise. The Top 10 constituents though, remained pretty much the same.
Index Performance
Despite the recent volatility, the Hang Seng Tech Index is still +2.54% YTD. Its 1y / 3y / 5y hypothetical performance stands at 78% / 50% / 187%.
As of end Feb 2021, ETF tracking difference was -0.35% since inception, which is acceptable in my view. Therefore, ETF performance should only be slightly less than index performance but since the difference is so small I consider them to be the same.
Kuaishou IPO
Kuaishou Technology (HKSE:1024) recently listed on HKSE via IPO on 5th Feb 2021. The stock almost tripled at the open to HK$338 from IPO price HK$115, and closed the day at HK$300. After a roller-coaster month, Kuaishou back to trading around the HK$300 mark as of writing.
Kuaishou is a Chinese short video company and one of TikTok’s biggest rivals. Its main business is a short video app and makes money from users who buy virtual gifts to give to their favorite streamers.
Kuaishou was added to the Hang Seng Tech Index within 2 weeks on the 23rd Feb 2021 through the IPO Fast Entry feature. Latest indicative holdings of HST as of writing does list Kuaishou as a holding at 7.45% weightage (close to the max 8%).
Other Chinese Tech IPOs in the works include heavyweights like TikTok parent ByteDance, Didi Chuxing and, not forgetting Ant Financial.
In my opinion, the potential of owning these fast-growing tech unicorns operating in the huge Chinese market is very enticing.
Risks
China-HK Relations
On 11th March 2021, China just approved a resolution to overhaul Hong Kong’s electoral system, tightening control over the city. While it remains to be seen how the people of HK will react and whether this move might spark more riots causing political instability, the US has already condemned the move.
This could further fray US-China relations, and possibly draw further scrutiny on Chinese companies listed on US exchanges. However, this ironically might actually be positive for HKSE by forcing more Chinese companies to list in HK if US shuts the door on US listings.
Chinese Regulatory Scrutiny
There was a recent rumor reported in the news that China regulators were mulling a US$1B fine against Alibaba in monopoly probe, compounding the Chinese tech giant’s woes after the cancellation of Ant Financial IPO back in Oct 2020.
So far Chinese regulator attention seems to be solely focused on Alibaba, but if they also turn their attention to other Chinese tech companies, that might be negative for the sector as a whole.
Closing Thoughts
Chinese tech stocks are definitely not immune to fears of rising interest rates and inflation, as we have seen in the recent tech sell-off. Add to that uncertainty in terms of US-China relations, HK political situation, and increasing Chinese regulatory scrutiny, investing in Chinese tech stocks seems super risky.
However, China is the 2nd largest economy and its GDP is still growing at emerging market rates. Tech innovation and adoption is also extremely high (definitely much higher than in Singapore). Without a doubt, China is now a superpower and will only continue to gain prominence and influence. So, it may only be a matter of time before it’s tech companies dominate globally and rival US tech companies.
I’m bullish on China especially their tech sector, and I think HST will help me gain good exposure to most of the best Chinese tech companies, without the risk related to US listings.
So I’ve decided to start nibbling into HST. To do so, I’ve just set up monthly purchases through the OCBC BCIP for $500/month and the first purchase should begin in late March. The plan is to buy monthly automatically for a year and evaluate on the anniversary whether to continue. Automatic monthly purchases would free me up to focus on other things and take the emotion and stress of trying to time the market.
Thanks for reading. Please subscribe to my mailing list if you enjoyed this post and would like to be notified whenever I release a new update.
Links
- Kuaishou IPO: Stock rises 160% in $5.3 billion Hong Kong debut (cnbc.com)
- hsteche.pdf (hsi.com.hk) – Hang Seng Tech Index February 2021 Factsheet
- Hong Kong: China’s parliament endorses plan to ‘improve’ elections – CNN
- US slams China’s Hong Kong move, to raise Xinjiang genocide charge in talks – CNA (channelnewsasia.com)
- China denies mulling near-US$1 billion fine for Alibaba in monopoly case – CNA (channelnewsasia.com)
Disclaimer: I’m not a financial adviser and this is not financial advice. I’m just sharing my thoughts on investments. Please do your own due diligence before making any investments based on what I’ve shared. If you are still unsure, seek advice from a professional financial adviser.
Disclosure: I’m long Alibaba BABA and Tencent 0700. Currently, I don’t have a position in HST or HSS, but intend to start averaging into one this month.