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Have Chinese Tech Stocks Bottomed?

August 25, 2021

 

After months of hefty selling pressure in Chinese tech stocks, it appears the bottom fishers have arrived this month.

Two weeks ago, during our live coaching call back on August 10, I suggested that the bottom could be close for Chinese tech stocks and shared five stocks/ETFs that could benefit from the inevitable rebound.

I based this on the $2 billion of inflows that we detected in the Kraneshares Chinese Internet ETF (KWEB) that arrived in the month of July. (After all, volume always precedes price movements.)

Now, this week, major institutional investors appear to have arrived in search of bargain prices attracted by Tencent’s (TCEHY) recently announced share buybacks and a solid earnings beat by JD.com (JD).

Chief among this week’s institutional buyers of Chinese stocks is Cathie Wood, the founder of Ark Investment Management. (We track Cathie Wood’s portfolio and rank it according to our Smartscore system. You can view it here.) 

Why have Chinese stocks been lagging the overall market in 2021?

The selloff is largely due to Beijing’s massive regulatory crackdown on its tech sector. For years, Chinese tech firms have been able to grow and expand without meaningful regulatory oversight, relative to other markets.

However, all that began to change late last year when Beijing decided to tighten the leash on Chinese tech firms. In order to maintain its global competitiveness and protect its citizens from excessive privacy concerns, Beijing recently passed new personal data privacy laws, which are scheduled to take effect this fall. The new regulations will add new compliance standards for tech firms regarding their collection, handling and storage of customer data in order to protect online user data privacy.

While many investors are concerned about China’s stiff regulatory approach, I personally view the recent moves as positive for long-term investors in the Chinese tech space. By defining the rules earlier, rather than later, China has potentially set itself up for more sustainable long-term growth in its burgeoning tech sector.

So which Chinese tech stocks do we like for the long-term?

We personally like Alibaba (BABA)Tencent (TCEHY)JD.com (JD), and Tencent Music (TME), just to name a few. Many of these names are trading well off their record highs and could offer significant long-term upside potential for the patient investor. (Of course, there is no guarantee that the current downtrend is over in the Chinese tech space. For those who prefer to invest with the trend, it would be “safer” to wait for a confirmed Position uptrend in these stocks before adding.)

Another place to research the leading Chinese stocks is with our Smartscore ranking system. Here’s a look at the current top 10 Smartscore-ranked Chinese stocks:

(View all stock rankings by Smartscore here)

So too, for those investors who prefer to use ETFs to gain exposure to China, we like the Kraneshares China Internet ETF (KWEB)For our take on investing in China through ETFs, check out this video entitled: How to Profit from the Rise of China with ETFs.

For now, we still urge caution in the space until a confirmed uptrend resumes. But, at the very least, now is a great time for bargain hunters to be making a shopping list of the stocks they would want to add for the long-term when the next uptrend arrives.

You’ll find my latest swing trading idea and commentary here.

Happy investing!

P.S. If you missed today’s live coaching call you can watch the full replay on-demand here. We covered many investing/trading topics and answered many of your questions during this live event. Check it out!

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