Shanghai reopening: tech stocks in Hong Kong are worth a punt as China passes short-term peak Covid-19 pain, Alpine Macro says

Chinese tech companies are likely trading at trough earnings with trough multiples, the research firm said in a report published on Tuesday

The firm recommended a long position on the Hang Seng Tech Index, but cautioned that existing earnings expectations are “unrealistically benign”

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Residents cross the road near the bund as day breaks on Wednesday, in Shanghai, where authorities took major steps toward reopening China’s largest city after a two-month Covid-19 lockdown. Photo: AP

Published: 12:47pm, 1 Jun 2022

China’s biggest tech stocks in Hong Kong are worth a punt as the nation’s stringent zero-Covid policy “has passed its near-term peak and some common-sense pragmatism” will begin to manifest, according to Alpine Macro.

The Montreal-based research firm recommended opening a speculative long position on the Hang Seng Tech Index as a way to bet on the phasing out of China’s zero-Covid restrictions and a gradual recovery in business activity.

“Chinese tech companies are likely trading at trough earnings with trough multiples,” Yan Wang, chief emerging markets and China strategist, wrote in a report published on Tuesday. “Investors’ near unanimously bearish sentiment on this sector also means that the sell-off pressure has been largely exhausted, further limiting downside risks.”

Meanwhile, the number of newly infected Covid-19 cases has been falling, which is likely to further facilitate this shift in policy and business activity, he added. Shanghai is unravelling the citywide lockdown with gradual reopening from June 1 under a 50-point plan unveiled on Sunday to begin repairing its economy.

Yan Wang, chief emerging markets and China strategist at Alpine Macro. Photo: Handout

Chinese tech stocks also look cheap, having fallen over 60 per cent from their February 2021 peak. Hang Seng Tech Index members trade at about 10 times price-earnings ratio, compared with almost 40 times for stocks in the Nasdaq Composite Index, or about nine times the broader Hong Kong market.