The night is always darkest before the dawn.
Although I am not entirely sure that it is now dawn for the Hong Kong market, I must admit that it has been a boon for those accumulating beaten-down Hong Kong blue chips.
It would have been an easy 15% gain at least since the entire Hang Seng Tech index is up by 15% in the past month.
For the technical camps or the trend-chasing traders looking for a revival sign, this might be it!
In case you are too out of touch on what stocks to focus on in this rebound, here are 5 China tech stocks.
Tencent Holdings Ltd (HKG: 0700)
Even though Tencent has been undervalued for plenty of years, I will always believe the day when I did my first analysis of the company.
The Tencent ecosystem and walled garden are far superior compared to its ‘Magnificent Seven‘ counterparts in the States. Its first mover advantage as China’s de-facto chat app and payment solutions is the Promised Land that WhatsApp wanted to reach but is still not there yet.
Throw in the gaming empire and the fingers it has dipped in numerous other gaming companies around the world, plus Tencent Video, and you literally have a Meta Platforms Inc (NASDAQ: META)+ Activision Blizzard + Netflix Inc (NASDAQ: NFLX) chimaera.
If Tencent wasn’t a Chinese stock, it would have had a price-to-earnings valuation of at least 35x. It is currently a whiskers’ shy of 30, trading at a trailing P/E of 29x.
NetEase Inc (HKG: 9999)
NetEase ranks as one of the top few internet technology and gaming companies in China. Do not let its status as a Chinese gaming company fool you – its games are one of the top downloaded and played around the world.
Its value proposition is straightforward – it offers the same game genre but with slightly lower graphics requirements to cater to the mass market.
As affordable mobile phones and mobile gaming become more mainstream, the need for a better-optimized gameplay experience on less powerful chips sees NetEase operating well within this segment.
Taking a leaf out of Tencent’s VC approach in investing in gaming studios, NetEase too has been investing in plenty of smaller studios around the world.
It is still trading at a P/E ratio of 16x, relatively cheap for a profitable tech company.
Alibaba Group Holding Ltd (HKG: 9988)
The Tesla of HK tech.
Not from a business point of view, but in terms of grabbing the headlines most of the time.
The Amazon of China flourished during the golden age of the internet. There have also been numerous new initiatives, ranging from Cainiao, Freshippo, a premium shopping platform Tian Mao,
But Baba shares have kept dropping like a stone for a few years consecutively.
Only recently did we see share prices breach the 100-day moving average, and this time, gapping up.
They say the fifth time’s the charm. It does look so.
But I remain wary of the other e-commerce competition in this slowly red sea space.
JD.Com Inc (HKEX: 9618)
JD share prices are up by almost 27% since last month, making it one of the stocks that grew the most.
It also shares a relationship with Walmart Inc (NYSE: WMT) established when the US retail giant sold its China e-commerce business to JD in exchange for JD shares.
Just like most China tech, it is slowly dipping its toes into various segments, after building a resilient logistics arm to complement its e-commerce business.
That kind of justifies its revenue growth, which has an unbeaten growth streak even during the pandemic era.
Meituan (HKG: 3690)
The DoorDash Inc (NASDAQ: DASH) equivalent of China is certainly not having the greatest time for the past 2 years.
Even though fundamentally Meituan has broken into the black, the share price was at a period down 85% from peak to trough.
The worst seems to be the end as of now, as Meituan rode together with the Hang Seng Tech rebound, and is now almost 100% up from its low.
It still commands a lion’s share of the China on-demand food delivery market. Its closest competitor – ele.me under Alibaba, is still nowhere close to its dominance after so many years.
Meituan might look to have hit the saturation point, but reports are calling for a 10.6% CAGR growth for the China food delivery industry in the next 9 years.
Water can help a boat float but it can also sink it
This is one of my favourite Chinese idioms out of the thousands available.
And I think it perfectly sums up what is happening to a lot of the China stocks.
For too long Hang Seng, has remained neglected and oversold. The recent impetus and revival floated all types of Hong Kong and China stocks.
On paper, it could signal the revival of the next Hong Kong bull run.
But it also means more eye balls on the performances of these companies. And if they are not in line with expectations, we could be seeing sell-off on the underachievers.
For those who have accumulated Hong Kong tech stocks for the past 1 year, your test could be just around the corner!
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