China Market

Hang Seng Tech ETF Update – Chinese Tech Stocks Still Firmly Bearish

Calvin Lo

The Hang Seng Tech Index has continued on it’s bearish downtrend with no end in sight. HSTECH is down 10% YTD and a whooping 46% the past 1Y. HSTECH has also recently broke below 5,230 support level and is now at around 5,110.

If you want to gain exposure to HSTECH, you can do so through the Lion-OCBC Securities Hang Seng Tech ETF (SGX:HST) – read my review here. If you prefer more broad-based exposure to Chinese stocks, you can also consider the Lion-OCBC Securities China Leaders ETF (SGX:YYY) – read my review here.

Last week there were renewed fears over a fresh wave of regulatory crackdowns in China (read here). Combined with news of the Russian invasion of Ukraine, Chinese tech stocks continue to get hammered.

On the COVID front, China is still practically operating on a zero COVID policy with imposition of tough lockdowns whenever cases start to spike. PBOC is also loosening monetary policy, diverging from other major central banks most of which have started or are considering tightening.

Changes in HSTECH constituents

In the most recent quarterly review (announced 18 Feb 2022, effective 7 March 2022), HSTECH index will replace 3 of its constituents per table below:

About the consitituents being included and removed:

  • Sensetime is an Artificial Intelligence (AI) software provider. Li Auto and Xpeng are both Electric Vehicle (EV) manufacturers.
  • Tongcheng is an online travel services company. Weimob is a cloud-based commerce and marketing solutions company. Autohome is an online automobile marketplace.

Interestingly, another Chinese EV maker Nio has just proposed a secondary listing in HK (read here). If the listing happens as scheduled on 10 March 2022, we might see Nio being added to HSTECH index at the next review. All 3 EV companies are listed on NYSE with tickers $LI, $XPEV and $NIO.

Personally, I like the additions which are companies in secular growth industries of AI and EV. Seems like the 3 companies that were kicked out were marketplace/platform companies.

Here’s a snapshot of HSTECH index constituents as at January 2022 (prior to above constituent changes):

My thoughts

I still really like the makeup and weightings of HSTECH index. Most of them are innovative tech companies on par with western counterparts.

The problem is the risk of further regulatory crackdown, government COVID policy, and China’s slowing economic growth. Sentiment in Chinese stocks are still firmly bearish although valuations have fallen to really attractive levels.

Personally, I’m not buying yet especially with the added uncertainty from a possible large and protracted war. Hopefully diplomacy prevails and we can avoid a full-scale war. I don’t think China will be directly affected from the war, but you never know.

Until HSTECH breaks the upper bound of the downward trend line, I’m unlikely to add to my position. I don’t know how low this will go, but I’m sitting tight at the moment. I still have a long time horizon and my position size is small relative to the rest of the portfolio, so I’m not overly worried about further declines despite the pain.

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Disclosure: I’m long SGX:HST

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