Analyst says now is not the time to buy Chinese tech stocks
Chinese consumer and technology stocks were the worst-performing in August, according to Saxo baskets, while crypto and cyber security were at the top of the pile.
An equity basket is a collection of stocks linked by a theme identified by Saxo analysts to isolate an area of the market, and act as inspiration for investors.
| Equity Theme Basket | August Return (%) |
| Crypto & Blockchain | 16.8% |
| Cyber Security | 6.1% |
| Logistics | 5.9% |
| NextGen Medicine | 5.3% |
| Financial Trading | 4.4% |
| Mega Caps | 3.2% |
| Green Transformation | 3.0% |
| India (GDRs) | 2.7% |
| Battery | 2.2% |
| MSCI World (USD) | 2.2% |
| Payments | 1.8% |
| Travel | 1.7% |
| Semiconductors | 0.8% |
| E-Commerce | 0.6% |
| MSCI EM (USD) | -0.2% |
| 3D Printing | -1.6% |
| Commodity Sector | -1.8% |
| Bubble Stocks | -1.8% |
| Gaming | -2.0% |
| Cannabis | -3.6% |
| Chinese Consumer & Technology | -4.7% |
Sitting at the bottom of the pile is the Chinese consumer and technology basket, down by 4.7% in August.
Chinese stocks have had a difficult year on regulatory changes and restrictive government measures, causing a downturn in the sector.
“Our Chinese Consumer & Technology basket is the worst performing basket this year due to the ongoing technology crackdown in China,” said Peter Garnry, head of equity strategy at Saxo Group.
Investors will be wondering whether now is the time to buy Chinese technology stocks.
“The short answer is no,” said Garnry. “Chinese technology stocks are currently trading at a discount to US technology stocks for good reasons and as long as this discount persists we think investors should focus on Chinese consumer stocks and get exposure to technology in the US.”
“The crackdown of the technology sector in China that started over a year ago has intensified this year with an onslaught against the for-profit education industry and the world’s toughest data privacy law. Gaming regulation and tighter control of content dissemination are on the way, and the word ‘Common Prosperity’ is being used more and more in government speeches indicating higher taxes and more redistribution; Alibaba recently announced that it expects to lose various preferential tax rates related to its various businesses.”
The regulatory shift in China has impacted Saxo’s China Consumer & Technology basket so that it is now the worst performing theme basket year-to-date, down 12.4%.
“Tencent is by far the most powerful private company in China together with Alibaba. Given Tencent’s share price is down 39% from the peak it is a natural question whether this is not a remarkable buying opportunity,” said Garnry.
“Though with foreign investors pulling out of China for now we cannot leave out the possibility that Tencent could suddenly trade at a discount to Facebook.”