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NEW YORK, NY – On September 19, 2014, the Chinese flag was prominently displayed outside the New York Stock Exchange during Alibaba Group’s initial public offering (IPO), which notably raised $21.8 billion, marking one of the largest IPOs in history.
Recent trends reveal a downturn in technology stocks listed in Hong Kong, which fell into correction territory as investors opted to realize profits. Market sentiment has been adversely affected by uncertainties stemming from ongoing trade tensions and recent U.S. actions to limit Beijing’s access to advanced technology.
The Hang Seng Tech index, which gauges the performance of major Chinese technology firms trading in Hong Kong, has experienced an 11% decline since reaching its peak on March 18. This index witnessed a drop of over 2% on Monday alone.
Investor interest in Chinese stocks was rekindled following the implementation of more robust stimulus measures by Beijing last September, leading to heightened inflow from both domestic and foreign institutional investors. Consequently, the Hang Seng Tech Index soared to a three-year high earlier this month.
A significant factor contributing to the renewed enthusiasm for Chinese tech firms was the introduction of the R1 model by AI startup DeepSeek in January, positioning it as a competitive alternative within the AI landscape and challenging established American players with claims of superior performance at reduced costs.
Recently, stocks in Hong Kong, notably those of Alibaba and Tencent, saw record net purchases from mainland Chinese investors, showcasing a robust interest in these leading tech companies.
Despite these positive indicators, caution remains. Dan Niles from Niles Investment Management noted the prevalence of “false rallies” in Chinese tech stocks over the past three years, suggesting that a repeat scenario could unfold, particularly if U.S. tariffs become more stringent or if the Chinese government takes actions detrimental to these companies.
James Liu, CEO of Clearnomics, indicated that Chinese markets exhibit greater volatility compared to the U.S. and other developed markets, underscoring that the evolving trade war dynamics will likely exacerbate this volatility. He advised investors to consider Chinese tech stocks primarily as a means of diversifying portfolios that have become overly reliant on U.S. technology.
Vincent Chan, a strategist at Aletheia Capital, emphasized that the recent downturn in the tech sector was not a reflection of negative news but rather a natural response to profit-taking amid a still tentative economic recovery. This view was echoed by Vey-Sern Ling, a senior equity advisor at UBP, who described the pullback as “normal” following the robust rally seen in the year and expressed optimism regarding investor sentiment within China’s technology sector.
“Innovation is back, and government support is evident,” Ling said, pointing out that Chinese tech stocks still possess potential for significant appreciation driven by strong earnings reports and comparatively low valuation metrics against international peers.
As of now, the MSCI China Index is trading at approximately 12.58 times its projected one-year earnings, in contrast to the S&P 500’s higher valuation of 20.21 times projected earnings, according to data from FactSet.
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