Tech Stocks in Hong Kong Are Worth a Punt
According to Alpine Macro, China’s most prominent IT firms in Hong Kong are worth gambling on since its strict zero-Covid policy “has passed its near-term high, and some common-sense pragmatism” may begin to appear.
The Montreal-based research group advised initiating a speculative long position on the Hang Seng Tech Index to bet on China’s zero-Covid restrictions being phased away and a gradual revival in corporate activity.
Chinese technology equities likewise appear to be falling; it dropped more than 60% from their peak in February 2021. Members of the Hang Seng Tech Index trade at roughly ten times price-earnings, compared to about 40 times for the Nasdaq Composite Index firms or nine times for the entire Hong Kong market. Alpine Macron’s stance contrasts with DZ Bank’s Manuel Muehl, a Frankfurt-based analyst who maintains a sell rating on Alibab; moreover, it has reduced the price target for its US-traded shares by 15%.
The 30-member Tech Index gained 1% in May, following a 2.1 per cent increase in April. Nonetheless, the index has fallen 21% since the beginning of the year; delisting fears and continuing concerns about Beijing’s regulatory crackdown drove it down. Alpine Macro has been relatively gloomy on Chinese stocks due to the zero-COVID repercussions; hence, it remains cautious on the longer-term outlook because the real impact of lockdowns on business profitability is still unknown.
Since late 2020, Beijing’s crackdown on the internet sector has extended a long shadow across the country’s labour market; including antitrust penalties, harsh private tutoring regulations, and overseas listing limitations. Only recently did the Chinese People’s Political Consultative Conference hold a special symposium to promote the digital economy.
On the other hand, pay levels in Big Tech are under pressure. More than 35% of questioned professionals in China’s internet and tech sector reported a lower bonus this year compared to the previous year; meanwhile, 33% reported no change.