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Volunteers pose for a picture during the Covid-19 lockdown in Shanghai, on May 5, 2022. The city’s reopening should help internet, car and consumer stocks outperform in the near term, according to Julius Baer. Photo: EPA-EFE

Chinese tech stocks are either a good buy or a trap in market slump, investors say

  • A 38 per cent rebound in Chinese tech stocks in Hong Kong and New York is spicing up the market after a year-long regulatory crackdown
  • Investors and analysts are challenged by regulatory unknowns and zero-Covid policy in gauging the market outlook
Chinese technology stocks traded in Hong Kong and New York have risen by at least 38 per cent since the mid-March plunge, recouping almost US$600 billion of market value combined. Investors rushing back into them may be wary of a bull trap.

The Hang Seng Tech Index jumped 4.6 per cent on Wednesday, tracking an overnight 3.4 per cent advance in the Nasdaq Golden Dragon China Index. Since hitting multi-year lows on March 15, Alibaba Group Holding and have soared more than 50 per cent while Tencent Holdings jumped 31 per cent.

News about approvals for new online-gaming titles, and speculation about an end to cybersecurity investigation on ride-hailing operator Didi Global, are entrenching the view that China has dialled back its hostility against “the disorderly expansion of private capital”.


Shanghai residents confront officials after swift return of lockdown

Shanghai residents confront officials after swift return of lockdown

Here’s what money managers are saying about the tech stocks and the sector that sway trading sentiment in the Hong Kong and mainland China stock markets.

BNP Paribas

The imminent conclusion of Didi’s cybersecurity review and the introduction of the “traffic light” scheme for tech regulation suggest China might be easing its crackdown on the tech sector, strategists Jason Lui and Zhang Cici wrote on June 8.

The traffic light scheme was an idea first put forward during last December’s top economic meeting to guide the orderly development of capital.

Investors could consider buying an up-and-out call option on the Hang Seng Tech Index for more upside leverage, a trading strategy they said would limit capital at risk because of the high volatility in these stocks.

Mizuho Securities

“With concerns about US consumer demand and economic outlook, we sense that sentiment in China Internet is improving,” James Lee, managing director of the Japanese brokerage’s US unit, wrote in a report on May 23. His top picks are Baidu and


Hong Kong’s Temple Street fortune-teller predicts what’s ahead for the Year of the Tiger

Hong Kong’s Temple Street fortune-teller predicts what’s ahead for the Year of the Tiger

“We are getting inbound questions about China Internet since both estimates and valuation levels are at all-time lows, and the economy has levers to drive growth.”

The declining trend of Covid-19 cases on the mainland will lead to reduced mobility restrictions, while recent stimulus announcements have been supportive for the tech sector, he added. More catalysts could come in the form of new fiscal and monetary support in July, he added.

Haitong International Asset Management

China’s internet sector is cheap for a reason, given that its business models and profitability have changed for the worse, head of investment strategy Hyde Chen told the Post on June 2. This explains why investors are paying lower multiples for them, he added.

“The government is also expecting [tech firms] to assume greater social responsibility, so it is much more difficult to deliver similar growth even without Covid-19 and lockdowns,” said Chen. Gone are the “good old days” for internet stocks, he added.

Pedestrians walk past a sign showing the Hang Seng Index in Hong Kong on May 30. Photo: AFP

“If overall consumption rebounds in China, it is going to benefit the internet sector,” he said. “But we see more individual bottom-up opportunities, instead of the overall sector for now.”

Julius Baer

Shanghai’s reopening on June 1 means internet, car and consumer stocks should outperform in the near term, said Richard Tang, Asia equity research analyst at Julius Baer. The market has likely troughed, but recovery is likely to be gradual, he added.

“We expect internet stocks to rebound the most given their high sensitivity, although they have become cyclical positions instead of core positions,” he added. “These names may face resistance once their share prices approach levels of early March.”

BCA Research

The structural outlook is unfriendly for shareholders of Chinese platform companies, chief emerging markets strategist Arthur Budaghyan wrote on June 2. The toned-down rhetoric and actions are a tactical rather than a structural change.

Vice-Premier Liu He’s comments on March 16 and May 17 when stocks were plunging were solely to calm the market and restore investor confidence, Budaghyan said.

The structural outlook is affected by several negative factors, including higher uncertainty about their business model, state regulations on their profitability, the cost of social duties or common prosperity, Beijing’s prioritisation of national and geopolitical objectives over shareholder interests, and the risks of delisting from US stock exchanges, he added.