An index launched a year ago to give investors greater exposure to China’s Internet giants is now the world’s worst-performing major technology gauge.
The Hang Seng Tech Index has been on a roller-coaster ride in the past 12 months. The gauge, which marks its first anniversary on Tuesday, was up 59 percent at its February peak, but has since seen more than US$551 billion in market value wiped out amid Beijing’s clampdown on the sector.
That has reduced its gain to nearly 6 percent, compared with more than 40 percent for the MSCI World Information Technology Index and the NASDAQ-100 Index. The measure also lags onshore peers — the ChiNext Index is up 35 percent for the period.
The underperformance highlights regulatory risks for one of the fastest-growing sectors of China’s economy. Beijing’s bold moves to rein in the nation’s powerful tech firms, such as Jack Ma’s (馬雲) Ant Group Co (螞蟻集團) and Didi Global Inc (滴滴), have sent global investors fleeing on concerns over China’s tighter grips on data.
“The ongoing concern that medium-term earnings power may be dented by their data becoming more of a public good, and privacy becoming more of an issue, remains a headwind,” Robeco Hong Kong Ltd portfolio manager Joshua Crabb said.
Bank of America Corp strategists wrote in a note last week that the regulatory overhang is unlikely to dissipate any time soon, instead recommending investors to rotate into tech firms outside of China.
Launched last year, the gauge tracks the 30 largest Hong Kong-listed tech firms, including giants such as Tencent Holdings Ltd (騰訊), Alibaba Group Holding Ltd (阿里巴巴) and Meituan (美團). It was set in motion at a time when Chinese tech companies were looking to list closer to home as growing tensions between Washington and Beijing threatened to curtail access to US capital markets.
The index took a fresh beating this month — down 11 percent — after China ordered a ban on new users from downloading Didi’s app. Regulators are considering unprecedented penalties for the ride-hailing company following a controversial initial public offering, people familiar with matter have said.
While the forward price-to-earnings ratio for the Hang Seng Tech Index has slumped from a February peak, it is still trading at about 35 times estimated profits, compared with 28 times for the NASDAQ-100 Index and 43 times for the ChiNext, Bloomberg’s data show.
That has not deterred some. Hong Kong’s two most popular exchange-traded funds this year are those tracking the tech gauge. The combined total assets of all such ETFs have more than doubled in size this year to US$3.8 billion, and the pace of investment into the products has accelerated since mid-May.
“Some long-term institutions may have started buying these Hang Seng tech ETFs. It seems that the more the index falls, the more ETFs they will buy,” Zhongtai Financial International Ltd (中泰金融國際) analyst Alvin Ngan said.
While some see the uncertainty created by the ongoing crackdown as a buying opportunity, others remain wary amid questions over its duration and where it might head next.
Jian Shi Cortesi, a fund manager at GAM Investment Management in Zurich, said the bottom will not be seen until investors have seen the conclusion of tightening regulations.
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