China Tech Stocks: Time to Buy or Sell?
If you are one of the investors investing in the CHN/HKG tech sector, I am sure you would have felt the pinch as the index (iShares Hang Seng TECH ETF (3067.HK) is down by -37% from the all-time high of $22.98 to $14.40 as of writing this article and it was down by -44% at one point. The prospect of these China tech stocks will be challenging, and I don’t think we should expect any immediate rebound from this sector and is going to be volatile since the crackdown from the regulatory on “anti-monopoly” (Baba/Tencent) to “data security “(Didi) and the recent “education” (TAL/ New Oriental). We have seen the share price plunged by more than 30-50% and some education stocks almost wipe out with dropping of more -90%.
As usual, we will see two different points of view with regards to this tech crackdown and correction, some said it is just a temporary trend and the regulatory is just trying to target some / certain sub-sectors within the tech sector and enact some control or tightening some of the loopholes (hence, we should buy the dip and be greedy when others are fearful. On the other, there is another camp saying that this is a long term and permanent change in the way CCP (Chinese Communist Party) trying to do with “capitalist”. They are trying to curb the rise of “super-rich” capitalists and their influence by protecting the poor (or rising living cost in the middle class). (Hence, we should avoid investing in these China Tech stocks by all means.)
For me, I would like to take the “middle-path” and try not to interpret the recent crackdown as a “conspiracy theory” or the CCP’s action to “decapitate” the capitalist or trap the foreign shareholders/ capital by voiding the “VIE” scheme.
I think the CCP is trying to address the important issues of “demographic crisis” which may cause by increasing social inequality and rising costs for the middle class. We may notice that they are taking serious action against the rising living cost of the so-called three-pillars of social development (i.e. housing / education and healthcare). These so-called “three pillars “of social development has been crucial to CCP’s legitimacy as a “people’s party”.
Moves against tech titans like Alibaba, Didi and Ant Financial are aimed at addressing genuine problems in China's tech industry including unfair competition, lax cybersecurity, and predatory lending. In contrast, the latest education tech rules are intended to rectify unscrupulous practices like false advertising and VC capital-induced pricing wars that have disrupted the market and are increasingly excluding underprivileged children.
In investing in China/HKG stocks, we should also need to understand the different systems/approaches of “political philosophy “between the US and China. In the US, everything can be done through a strong “lobby group” from Wall-street where they will have a strong influence on policymakers eventually. But this is not the case for China, the central government have the final say and the action taken will be “swift/fast and furious “, without much “consultation. We need to recognize that under CCP’s regime, it is like “My Way or The Highway!”
I think this is what “spooked “ the market and foreign investors by dumping their share and exit the market in such a hasty and panicked way.
Well, nobody knows what will happen next and everything we write or predict was just an “opinion” of our own, there is no right or wrong on either camp, only time will tell. The important thing is to have a more diversified portfolio and control your position if you really want to invest in China Tech stocks.
News/Articles on China Tech Stocks Crackdown.
Understanding China’s Recent Moves in Its Capital Markets <source : by Ray Dalio
Should You Buy Chinese Tech Stocks After China’s Tech Crackdown? Source : < “sgmoneytmatters.com>
China’s Big Tech crackdown is about protecting the Communist Party <source: sg.news.yahoo.com>
Investors need to know the risks
So, what does all this mean for investors hungry for their own stake in Chinese companies looking at the potential for stratospheric growth? According to Chester Spatt, professor of finance at Carnegie Mellon University's Tepper School of Business, it’s all part of the risk of investing in China.
“If you're investing in companies with a footprint in China. I think I would think you understand you're going to be subject to these kinds of risks. And maybe the import of these risks has become a little clearer,” Spatt told Yahoo Finance.
“I think people need to understand that the rule of law is interpreted differently in different parts of the world, but that's a longstanding theme. That's not a new theme.”
Videos On China Tech Stocks Crackdown
Should You Still Invest In Chinese Tech Stocks? | Money Mind | Investing in China <video source: CAN/MoneyMind>
China Tech Crash - Is It Time To Buy? <video source/credit to The Fifth Person>
Chinese Tech Stock Crash | Should We Buy Now? <video source /credit to ValueInvestAsia.com>
Based on the above, it seems that not only the tech sector but all sectors including the “banking/property/utilities etc...” are subjected to this major “regulatory risk” when investing in China.
As investors, we need to think about the “risk & reward” and the risk tolerance we could take before putting our money into this market, position sizing and diversification may help to mitigate some of the risks.
Stay Safe & Stay Healthy!! till next update.
My CHN Tech Stocks Update :
Total = 10.4% of my portfolio value
Performance / Returns:
YTD = -19.8%
Since Inception : -11.8%
Current Stocks/ Holdings :
This is not a call to buy or sell stocks mentioned in this blog post. Please refer to the below disclaimer for further info.