Its been Chinese Big Tech that has been the biggest mover here in Hong Kong this week. I'm writing this with a Typhoon 3 signal and red-rainstorm raining in effect - it is pouring like a monsoon - but there is a tiny sliver of blue sky for Hong Kong and Chinese stocks after a terrible eight months.
Alibaba Group Holding (BABA) (HK:8888) rose 5.6% here in Hong Kong today, following through on an 8.3% one-day advance in U.S. trading on Thursday, which itself built on a strong Wednesday in Hong Kong. The Hong Kong listing is now up 12.8% in two trading days, pointing to further gains on Wall Street today. I'll see you, and raise you some...
Mainland Chinese markets resumed trade today after a week off in honor of China's National Day. The Shanghai and Shenzhen screens were black while the S&P500 and U.S. Big Tech were all over the place. Now Chinese traders are back, like, "What did I miss?"
Of course the Hong Kong stock market has been open all week, with a holiday only last Friday, on the October 1 anniversary of the founding of Communist China in 1949. The Hang Seng, up 0.6% today, has found a little strength since Wednesday's close, up 3.5% since then.
Hong Kong has still had a torrid time of it with persistent losses since February that leave the Hang Seng down 9.6% year to date. The CSI 300 of the 300-largest mainland stocks has fallen 6.4% in 2021. It rose 1.3% today.
Mainland stocks are a little more insulated than little old Hong Kong. Shanghai and Shenzhen have far fewer overseas investors and benefit from a captive audience of investors at home. They struggle to get their money out beyond the Bamboo Curtain.
Hong Kong has lost virtually all its civic freedoms, but is still free and easy financially. So you'll see the hot flows here first.
Alibaba is coming off an all-time low for its Hong Kong shares, which raised US$13 billion when they listed in November 2019, as I explained at the time. That made it a leader in the colocation of listings, with most U.S.-listed Chinese tech companies following suit.
The Hang Seng Tech Index has also been at a record low. It launched in July 2020. Since then, it has been up 56.4% through February 17 this year, and down 46.4% from February 17 through Wednesday's close, which has a symmetry of shocking volatility to it.
If you look at its 30 constituents, which you can find here, it gives you a good base for tracking a portfolio of Chinese tech. Besides BYD, the other electric-car makers aren't there - NIO (NIO) , Xpeng (XPEV) (HK:9868) and Li Auto (LI) (HK:2015) - but most of the more-established tech names are.
Alibaba priced at HK$176 two years ago. It closed today at HK$154.90, having fallen as low as HK$132 on Tuesday. It has lost half its value in a year from its record-high Hong Kong close of HK$293.20 in October 2020.
So it has been a highly volatile ride for the Asian listing, that has little directly to do with its actual business, namely selling stuff online. It's very good and very profitable at that.
Instead, it has been caught in the currents and countercurrents first of U.S.-China trade relations, and then China's own crackdown on Big Tech. Beijing's pressure is now expanding to target simply private-sector Big Business.
True, Alibaba caught a little limelight this week with a report that Warren Buffett's business partner Charlie Munger has increased its stake in Alibaba via the investment portfolio of the publishing-and-software company Daily Journal, where he is chairman. The Daily Journal first established a position in Q1 and almost doubled it in Q3, likely leaving it sitting on hefty losses for now.
The holding, one of only nine in that portfolio, is a vote of confidence. But it's a brave investor that is buying Chinese shares these days. The enormous volatility in the Hang Seng Tech Index has little to nothing to do with the fundamentals of the underlying businesses. It's all momentum and politics. Good luck forecasting that.
App and videogame maker Tencent Holdings (TCTZF) (HK:0700) is similarly up 7.4% since Wednesday's close. It's an anomaly in that it has had its primary listing in Hong Kong for ages, since 2004, which might as well be since 1004 in technology years. Almost another millennium.
The other co-listed tech names have all had a stunning couple of days.
Videogame maker NetEase (NTES) (HK:9999) has advanced 13.2% since Wednesday's close. It is suffering twice as much as the rest of tech, sharing the sector's woes while also facing a crackdown on youth gaming. Kids are now barred from playing online games outside three weekend hours.
Short-video site Bilibili (BILI) (HK:9626) is up 10.3%.
JD.com (JD) , Alibaba's main direct rival as an online marketplace, is up 8.3% since COB Wednesday.
Web browser operator Baidu (BIDU) (HK:9888) is up 6.8%.
What's got them jumping? It's a combination of U.S. gains provoked by the government-shutdown ceasefire in Congress translating into Asia, coupled with some semblance of warming in U.S.-China relations and a calming of the internal Chinese credit situation.
President Joe Biden and President Xi Jinping have agreed to a virtual summit by the end of the year, according to U.S. officials. Xi is apparently bailing on the G20 summit in Rome later this month as well as the COP26 climate conference in Glasgow, which runs for two weeks from October 31. In fact, Xi hasn't been outside China in almost two years, the bulk of that time spent in Beijing.
One share that hasn't been jumping is China Evergrande (EGRNF) (HK:3333). The embattled, heavily indebted developer asked for a stock suspension on Monday, as I explained then, and the shares have been frozen all week.
Shares in smaller rival Hopson Development Holdings (HK:0754) also remain frozen, as do those of Evergrande Property Services (EVGPF) (HK:6666). Hopson is reportedly buying 51% of the property-management business for US$5.1 billion. But it is weird that there's been no update all week, suggesting due diligence, transaction negotiations and lining up Hopson's finance are taking longer than expected. A deal would signal that Evergrande's management is trying to salvage the business.
Anyone buying into Chinese tech should be very wary. There could be a slight thawing of U.S.-China relations. But questions over whether Beijing will allow Chinese tech companies to list in the United States are far from resolved. It is likely the Chinese Communist Party wants to wrest back control of all data, with ownership in Chinese hands.
Beyond that, the pressure weighing on Chinese tech is coming from within. It does not matter if Biden and Xi are getting along if Xi's party is preventing your company from signing up new customers. That's still the situation facing ride-hailing DiDi Global (DIDI) . Momentum traders can try to surf Chinese waves up and down. Longer-term investors should look for safer plays.
