SMIC (0981.HK) just broke out from its long-term down trend after a one-year consolidation.
Recently,
hit a resistance at 27.90 and has pulled back.
A break above 27.90 will see the price move to the next target at 31.40 and move towards the second target at 32.92.
The
company will be reporting results on the 05 August 2021.
CSOP HSI Tech Index ETF (3033.HK) traded
at a low since listing in August 2020
The CSOP HSI Tech Index ETF (3033.HK) listed in Aug 20 (as shown in Figure 1) and has traded below its year low today.
The ETF is mainly comprised of heavy techs like Alibaba, Tencent, Meituan, Jd.com, SMIC etc, China’s ongoing regulatory agenda against the internet sector in China, be it over monopolistic market positioning or control of data has contributed to the dismal performance China’s Tech sector and the divergence between the US Big Tech share has become extreme.
China’s crackdown US listed China tech companies like Didi and private tutoring has significantly unnerved financial markets with a 6% drop in the CSOP HSI Tech Index ETF and a 4% drop the HSI index today (26 July 2021).
Figure 1: CSOP Hang Seng Tech Index ETF (3033.HK) Broke Its Year Low Since Listing on August 2020
I’ve received many questions whether
this is the right time to bargain hunt on these Chinese big Techs, let me share
my thoughts.
So why is the CCP suddenly acting
against all these big techs?
China is waking up to fact that data
is the new gold, and it needs to institute rules to accumulate, govern and
share it. CCP makes decisions
based on what they think is in China’s best long-term strategic interests in
achieving its economic growth, reduce the gap between the rich and the poor and
the control of China consumer data which is deemed crucial to the China’s
national security.
If you are a big
tech company in China, you must know who’s the Boss and that the Chinese state’s strategic
priorities will take precedence over corporate interests to a greater extent
than in the past. The CCP is likened to be like the emperor and its
decision is like the emperor’s edicts, obey and you stay alive, and disobedience
will almost be the end. The blunt assertion of the state’s interests over
private enterprise in China also raises the risk premium of investing in
Chinese assets.
In order to reduce
inequality and promote sustainable economic growth, China needs to ensure
competition is sustainable and it means you cannot win by creating a artificial
monopoly and if you win it must bring tangible benefit to the Chinese
consumers. Alibaba and Tencent is a good example of company that infringed on
these rules. The days of free play for the Chinese techs are over, they are likely
to grow their business under a strict regulatory guideline which means their
future earnings will be hurt and it will ultimately hurt their valuation, and
this is precisely the reasons why Cathie Woods has been selling Chinese techs
on fear over a “valuation reset”.
Is it time to jump in?
In the short term,
there’s going to be volatility as the crackdown is clearly showing no sign of abating
and it will take time to play out. I believe this clampdown by CCP is long term
positive for China Tech because it will enable them to grow at a sustainable
pace although I would agree that it is a short-term negative.
Am I still bullish
on Chinese Tech stocks?
Well, I think the
potential of these stocks are enormous. If you are a short-term investor, you
need time your entry well, however if you are a long-term investor (3-5years
horizon) this could be a great opportunity to start dollar cost averaging on
these stocks.
Many of you who have
been following me know I have been very successful with timing the market with
my charts, so what does the chart say?
Let me just share the
Alibaba and Tencent Trade Plans:
1.
Alibaba Trade Plan: First called a Sell on
Alibaba (11 November 2020)
On 11th of November last year, I called a short on Alibaba based on my trade plan. It has since hit all the targets on my trade plan (as shown in Figure 2).
Figure 2: Alibaba (9988.HK)
2.
Alibaba Trade Plan: (27 July 2021)
Alibaba current trading at 191.76 (at the point of this write up).
According to my trade plan, the key support that offers a good entry level is between 172 – 182 levels while 212 – 230 levels post a huge resistance. Turn long term bullish only when the price breaks above 230.
3.
Tencent Trade Plan: (26 July 2021)
Tencent closed at 490.00 on 26 July 2021.
According to my trade plan, the immediate target could be 472 (first target), and if it breaks down further, we could be looking at targets of 425 (second target) and 405 (third target).
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