China’s technology bonds offer global investors the best safe haven as US-China trade war rages on for more than a year

Investors who bought Chinese tech debt are sitting on a 13 per cent return, more than any other sector, Bank of America Merrill Lynch indexes show

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A man outside a Huawei outlet in Beijing on May 29, 2019. Photo: AP

Published: 3:21pm, 29 Oct 2019Updated: 9:37pm, 29 Oct 2019

China’s technology ambitions are at the epicentre of the nation’s trade dispute with the US. Not that you’d know it from the bond market.

Credit investors who bought Chinese tech debt at the start of the year are sitting on a 13 per cent return, more than any other sector, Bank of America Merrill Lynch indexes show. Industry titans from JD.com to Tencent Holdings and Sunny Optical Technology Group are in favour with US$192 billion Swiss asset manager Pictet Asset Management.

With the trade war hanging over the global economy and tech in particular, this may seem counter-intuitive. But President Donald Trump’s efforts to rein in Huawei Technologies and force supply chain changes have little impact on large parts of the industry that are focused on domestic demand. Plus, the revenues of tech manufacturers that don’t export to the US aren’t directly hit by Trump’s tariffs.

“There are no Asian countries that are completely immune to the US-China trade conflict, but we do see some resilient Chinese corporates,” said Thomas Wu, head of Asia fixed income at Pictet, highlighting Sunny Optical, JD.com and Tencent. “The tech-internet sector has been quite defensive in terms of how it’s faring in the trade war.”

While the trade tariffs have seen some component makers like Sunny Optical look to set up factories outside China, their revenues are still largely dependent on customer demand, according to Bloomberg Intelligence analyst Charles Shum.

Domestic consumers accounted for 84 per cent of Sunny Optical’s revenue last year, while exports to the US contributed only 2.1 per cent, according to data compiled by Bloomberg. For online retailer JD.com and internet giant Tencent, domestic demand accounted for at least 97% of their revenue in 2018.