Investors are offloading their holdings of Chinese technology shares at a record pace as worries over higher inflation coupled with dimming growth prospects hurt outlook for the sector.
(Bloomberg) — Investors are offloading their holdings of Chinese technology shares at a record pace as worries over higher inflation coupled with dimming growth prospects hurt outlook for the sector.
The KraneShares CSI China Internet ETF has seen outflows of almost $700 million this month, according to Bloomberg data, on track to be the worst month ever for the US-traded fund.
Similarly, the CSOP Hang Seng Tech Index ETF in Hong Kong is on track for the smallest monthly inflow since April 2021, which was the last time traders pulled money out of the fund.
Investors are bailing out even after tech stocks surged from their March lows and China’s biggest companies in the industry reported better-than-feared second-quarter earnings, which many analysts marked as the low point following Covid lockdowns.
News this week that Chinese regulators are progressing in talks with their American counterparts to avoid US delistings will do little to turn around sentiment, some investors say.
If the audit spat gets resolved, there is still a “laundry list of issues that have undermined investor sentiment towards China stocks — so this would be resolution of only one of those issues,” said Chetan Seth, Asia Pacific equity strategist at Nomura Holdings Inc.
While the Nasdaq Golden Dragon Index and the Hang Seng Tech Index have surged from their March lows, that’s barely put a dent in the epic rout that started some 18 months ago after Beijing’s regulatory crackdown escalated.
The outflows in August took place despite vows by regulators to boost support for the economy through various stimulus measures.
“We would be looking at the following inflection points, including an improving China macro, policy and regulatory backdrop that would boost sentiment around China,” said Pruksa Iamthongthong, senior investment director of Asian equities at Abrdn, which remains underweight on the sector.
There’s also the problem of catalysts.
Even when the economy recovers, investors have already changed their valuation models and thinking when it comes to Chinese tech firms. The regulatory crackdown caused firms to downsize and trim non-core businesses, which has stemmed growth after years of unfettered expansion.
Alibaba Group Holding Ltd.’s Hong Kong shares, for example, are trading at about 12.5 times its estimated earnings for the next year.
That’s even cheaper than utility firm CLP Holdings Ltd.’s 15.7 times and Hong Kong & China Gas Co.’s 20 times multiples, Bloomberg data showed.
“The market is valuing this sector differently,” said Jessica Tea, senior investment specialist for Greater China equities at BNP Paribas Asset Management.
“Some of those participants in this sector are becoming more mature, so we think that this sector’s golden age is probably over.”
Tech Chart of the Day
The Nasdaq 100 has rallied 18% from its June 16 low, but there are nine components that have lost out on this rebound.
Zoom Video Communications Inc. is down 19% as the software maker’s transition from an essential Covid-era tool to an enterprise business platform proves more difficult than anticipated. It’s followed by Match Group Inc.
and Intel Corp., both of which issued disappointing forecasts this month. The tech-heavy gauge was trading slightly lower on Friday.
Top Tech Stories
- T-Mobile US Inc. is partnering with Elon Musk’s SpaceX to offer wireless phone service in remote parts of the US where coverage is spotty.
- Dell Technologies Inc.
fell in premarket trading after executives’ pessimistic remarks about the business environment for the second half of the year outweighed solid quarterly results.
- Marvell Technology Inc., a maker of chips for data centers, networking and other equipment, fell in premarket trading after a weaker-than-expected sales forecast fueled concerns about a slowdown in the semiconductor industry.
- Xiaomi Corp.
is in talks with Beijing Automotive Group Co. to collaborate on producing electric vehicles, according to people familiar with the matter, as the technology company races to fulfill a promise to make its own cars by 2024.
- Chinese technology shares headed for a second day of gains after talks between Beijing and Washington to avoid the delisting of companies in New York was said to show signs of progress.
- Everbridge Inc., an enterprise software company, is exploring strategic options including a sale, according to people with knowledge of the matter.
- Twitter Inc.
was ordered to hand over more information about spam and bot accounts to Elon Musk as part of its legal fight to make the billionaire complete his $44 billion acquisition of the social-media platform.
- Chinese food-delivery titan Meituan reported a better-than-expected 16% increase in quarterly revenue, after appetite for meal takeout remained largely intact despite an economic downturn and Covid-related disruptions.
(Updates stock moves in last paragraph.)
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