Concerns Have Resurfaced About Chinese Technology Stocks

The Golden Dragon China Invesco ETF (PGJ), based on the Nasdaq Golden Dragon China Index, is down more than -17% since posting a 7-month high earlier this month.  The losses reflect the broader caution surrounding Chinese assets as long-standing concerns resurfaced to weigh on the overall market.  The Golden Dragon China Invesco ETF had more than doubled in price from its 9-1/2 year low in October after China ended its strict Covid Zero policies.

Regulatory risks have returned to weigh on Chinese stocks following the disappearance of banker Bao Fan, an influential dealmaker in Chinese markets, whose family was told he was taken into custody to assist in an investigation.  His disappearance has raised doubts about whether China’s regulatory crackdown has ended.  He has connections to China’s biggest entrepreneurs and advises mega-cap technology companies, including Alibaba Group Holdings (BABA) and Tencent Holdings Ltd (TCEHY).

Heightened tensions between the U.S. and China also weighed on Chinese technology stocks after the U.S. shot down an alleged Chinese spy balloon.  Pegasus Fund Managers said, “suddenly, there are just so many factors to worry about” for Chinese technology stocks.  “Cost control measures did help their past earnings, but margin-eroding price wars are intensifying in China.”  Also, Ethos Investment Management said they would be cautious about investing in Chinese stocks for the next two-to-five years, saying that geopolitical tensions and the government’s heavy hand will continue to be the norm.

Even solid corporate earnings from China’s mega-cap technology stocks have failed to alleviate investor concerns.  Of the nine Chinese technology companies that have reported quarterly results, including Baidu (BIDU) Alibaba Group Holding and Vipshop Holdings (VIPS), five have reported results that beat profit and revenue estimates.

Some analysts remain wary of the outlook for Chinese technology stocks.  Jennison Associates said it’s not looking to restore its position on big Chinese technology companies to previous levels, given the slowing growth outlook and rising regulatory risks.  Moreover, many of these technology companies “are at the whim of Chinese government policymakers, and it’s hard to say that anybody really knows what those policymakers are actually thinking and what their priorities are.”

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.