Chinese tech stocks are looking cheap after a big drop in 2021 - The Average Joe

    Chinese tech stocks are looking cheap after a big drop in 2021

    Victor Lei β€” Head of Research

    June 2, 2021

    Chinese tech stocks

    June 2, 2021

    For high growth, look no further than the other side of the world β€” China, with a GDP growing at triple the speed of the US and a population 4x the size.

    In the past few months, Chinese tech stocks fell hard but analysts say among these, there are bargains to be found…

    Taming the country’s biggest giants

    Until now, Chinese tech giants were able to grow with little government oversight. But China plans to prevent monopolies with new rules β€” threatening the power held by these tech giants…

    • In March, Chinese President Xi Jinping called for more laws and regulations on Chinese tech giants.
    • In April, China ordered 13 firms (i.e. Tencent, JD and Meituan etc) to restrict data use and restructure parts of their operations.

    Growth is expected to slow for the Chinese tech giants β€” which fell more than the US’Β  in 2021…

    • πŸ‡¨πŸ‡³ The Invesco China Technology ETF (NYSEA:CQQQ) β€” which holds ~100 of the largest Chinese tech companies, is down 4% in 2021.
    • πŸ‡ΊπŸ‡Έ The Invesco QQQ ETF (NASDAQ:QQQ) β€” which holds 100 of the largest US tech companies, is up 8% in 2021.

    Potential follows growth…

    Despite Chinese tech stocks’ recent problems, analysts expect them to gradually recover:

    • Some of the current worst-performing internet stocks are the ones with the best value β€” according to Citi’s global head of investments, David Bailin (via CNBC).
    • The regulatory risks are already factored in and these tech giants are unlikely to fall further β€” according to Justin Tang of United First Partners (via S&P Global).

    As a greater force in the global economic world and the only country to grow in 2021, it’s hard to ignore Chinese companies. But here’s where investors should be careful…

    Investors: Fear the regulations

    For those investing in the 240+ Chinese companies listed on the US stock market, here’s what you should watch out for:

    • Regulation: Unlike the US, Chinese companies are known to have higher risk of Chinese government regulations.
    • Delisting: Investors fear the possibility of Chinese companies being delisted from US exchanges β€” which happens when they don’t comply with American auditing standards for 3 years.

    China took a strong stance against tech companies operating financial services without proper licenses β€” including Alibaba (NYSE:BABA), JD (NASDAQ:JD) and others. To avoid a landmine, a diversified bet in $CQQQ would be a safer bet.

    More trends: Beyond Chinese tech stocks, investors can find bargains across the globe

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