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>
“Quote “
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.”
“Unquote”
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.
Cheers!
STE
PS:
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.
Disclaimer
Hi STE,
ReplyDeleteI like the last small caption below
Portfolio sizing. It plays a big part in the overall portfolio archietecture. I’m also honoured and sigh a relief when I saw similar pictures in your “holdings” list as one I’d make LOL!
Hi sleepydevil,
DeleteYup, diversification + position sizing is very important in such volatile market...
It is also my "honored " to have the same stocks as you ... hope we are both "right" at the end of the day . :D
Cheers !!
Hi Sim. Agree with you man. Diversification + Position Sizing.
ReplyDeleteI bought into the Tech ETF 2 weeks before the rout, sitting on 10% loss now, the fastest decline in my portfolio. LOL.
Hi Henry,
DeleteYup, diversification and position sizing in very import in such volatile market and must try to avoid the "all in" mind set in such uncertain market.
HKG TECH stocks is extremely volatile even if is ETF , it can swing +/- 5-6% in a day, not many ETF have such characteristic.
In HKG market, the "short selling" also play a very important role in causing such volatile market ... you can see that some fund manager are using ETF or Tracker Fund like 2800 / 2822/ 2833 to short the market , at one point or any day, the short vol for such ETF could hit as high as 60-70% !
Just need to mentality prepared for such high and extremely volatile market in investing in such sector.
Cheers ! :D
Yea tech is very volatile. Funny thing is this the first time I buy tech even though I worked in the industry for more than 2 decades. Every year I would sell off my perks share once I receive them and got my friend wondering why. 😔 you don't understand the industry or something wrong with your company ? Lol.
DeleteHope you don't regret in selling your ex-company's share options.
DeleteAnyway, now could be the good timing to take a look and use your "expertise " to buy some good and solid undervalue tech stocks... :D nobody knows, may "huat" big from here onwards on tech stocks... hahaha ! :D
Cheers !
No regrets. As an employee, I was already heavily vested. I joined when the company was just a few years old, so lots of uncertainty plus semicon is a cyclical industry. It has grown to become one of the HS Tech component recently with good leadership.
DeleteThat's what makes SG so great. The country is stable for businesses. More predictable. And this is what businesses like to have. Suka suka swing here and swing there very hard to earn money. So whatever, is good for SG.
ReplyDeleteHi Cory,
DeleteYes, "regulatory risk" is the major issue and concern which causing such volatile market swing , will need to be careful in investing in such market where there is much political driven. The growth prospect will be much different when they are driving towards "common prosperity", someone has to sacrifice for this, either entity or individual.
The long term valuation for their "tech stocks " would have to be "re-set" and be more realistic.
Cheers !! :D