‘Don’t try to catch a falling knife’ as red flags from China credit data, US inflation pressure growth stocks

Hang Seng Tech Index slipped below the 200-day moving average line this month, a bearish sign for stocks even after a 31 per cent plunge

Tencent’s rally since 2010 and its current reversal mirrors Nasdaq’s blistering decade before the 2000 dotcom crash

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Faster US inflation and weaker Chinese credit impulses are bad signs for growth stocks. Photo: Shutterstock

Published: 7:30am, 17 May 2021Updated: 7:37am, 17 May 2021

Chinese growth stocks have slipped below a technical indicator this month, underpinning Big Tech’s HK$4.28 trillion (US$555 billion) wipeout in Hong Kong since they peaked three months ago. It’s a bearish sign that prompted analysts at BCA Research to warn: don’t try to catch a falling knife.

The Hang Seng Tech Index, whose members are probably the best proxy for growth stocks, slipped below the 200-day moving average line earlier this month, the first time since the gauge was introduced in July, according to Bloomberg data.

The gauge fell 4.9 per cent last week, bringing the slump from its February 17 record to 31 per cent. Tencent Holdings and Alibaba Group Holding, the owner of this newspaper, slipped 23 per cent while Meituan sank 46 per cent in the period. After penalising Alibaba and probing Meituan, Beijing has now turned the heat on ride-hailing providers.

“Their regulatory scrutiny will continue, which will depress their share prices,” strategists at BCA Research including Arthur Budaghyan and Ellen JingYuan He said, referring to antitrust probes within China’s tech industry. “The riot in global growth stocks will persist.”

Red flags from recent Chinese credit data, where aggregate financing and new loans surprised on the downside, suggest more cracks in other parts of the market could emerge, they wrote in a May 13 report. Faster US inflation would also undermine growth stocks, they added, and investors should not try to catch a falling knife.

Aggregate financing fell 45 per cent to 1.85 trillion yuan in April, while new loans almost halved to 1.47 trillion yuan, BCA Research said, reflecting the central bank’s priority to stem financial risks rather than stimulate the domestic economy. Beijing is likely to continue paring back stimulus as the economy exits from pandemic-era crisis mode, it added.

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