Chinese tech stocks have rallied since hitting multiple all-time highs in early 2021, and the picture hasn’t improved much in 2022. That could at least be a compelling reason to watch. new to this sector, according to.
Regulatory pressures from both Beijing and Washington, DC, which began in earnest at the end of 2020, have relentlessly driven down stock prices in the sector, and
(ticker: BABA) lost nearly half its market value last year alone. The picture is not much better for peers because
This year’s equity selloff—amid red-hot inflation, soaring bond yields, and recession risk—has only increased the headache for investors.
But this is a tough time in markets in general. Global bonds are in their first bear market in a generation, crude oil is down 20% in the past three months amid whiskey volatility, and megacap giants seem
(GOOGL) flirting with deep double-digit year-to-date declines.
Goldman Sachs expects market volatility to continue, and is not ruling out a recession within the next year. Sharmin Mossavar-Rahmani—who leads the bank’s investment strategy group and is chief investment officer in the consumer and wealth management division—stuck to her guns about the safest place.
“We still think US equities are the best place to be in terms of piloting through these treacherous waters,” Mossavar-Rahmani said at a media briefing. Last Friday.
The bank is not recommending clients go overweight on other markets, but Mossavar-Rahmani added that Goldman likes European banks – and has even traded China’s technology sector.
Senior investment strategist Matheus Dibo describes trading using stock options. The play involves using all spreads, where options are used to take advantage of an increase in the stock price, and limit the downside by not owning the stock.
“The uncertainty is so high, whether it’s at home from all the regulations or even overseas with the SEC audit issue,” Dibo said. “Having said that, we think this sector has been hit hard.”
Investors in Chinese tech stocks will be unfamiliar with these regulatory pressures.
and their peers face tougher rules on data security and competition as President Xi Jinping tightens the country’s economy.
Abroad, Chinese tech stocks listed in the United States are at risk of forced delisting due to a split in accounting rules between Chinese authorities and the Securities and Exchange Commission. Although progress has been made on audit rules, it is not a done deal and this remains a significant tail risk.
“There is a lot of bad news about price in this sector,” said Dibo. “I think there is much less scope for disappointment going forward.”
After all, valuations in the sector have fallen significantly, the investment strategist said – with current prices down more than 70% from their February 2021 highs and many trading 40% below their pandemic peaks in March 2020.
“There are some things that could move this sector higher just because there is so much negativity,” the investment strategist said.
For one, despite the latest quarterly earnings season revealing a painful financial hangover from China’s disruptive Covid-19 lockdowns, tech companies still beat the Street’s sales expectations by 6% and profit estimates by 21%. They are doing ok.
Goldman will also be closely watching the back-and-forth audit rules, with China’s Public Company Accounting Supervisory Board currently grappling with the first round of reviews under a new deal. The next National Congress of the Communist Party of China – which comes in October – is another potential catalyst, with Dibo noting that the event could see new relevant announcements related to the sector.
And then there’s Singles Day – an e-commerce holiday in China that could be a make or break this year for online sales that could change the dial for the upcoming earnings season.
“But that doesn’t change the structural view of China, which is still much more cautious,” Dibo said. “Investors have not been rewarded for investing in Chinese equities, despite the phenomenal growth you’ve seen in the economy over the past two decades.”
Write to Jack Denton at email@example.com