China’s Tech Crackdown – Trading the volatility
China has always been a beacon of technological innovation for our time. The company opened its doors to technological developments years ago, and the results have been beyond astonishing.
Today, China holds the world’s second-largest economy. The country has been able to lift hundreds of millions from abject poverty in a matter of a few decades, and it is now one of the most prosperous countries in the world.
The prosperity itself was a mixture of two things – China’s teeming working population and an abundance of technological innovation. However, it would appear that the government is starting to crack down hard on the latter. Tech firms in China are now facing significant sanctions and fines, with no one safe from the government’s wrath.
Alibaba Gets the Brunt of It
For a perfect view of how China’s crackdown has been encompassing, look no further than the country’s largest tech firm – Alibaba. The company has grown into a sprawling conglomerate, evolving from just a platform where people can come together to buy items. At its peak, Alibaba – and its Ant Group subsidiary – had a collective worth of over $1.3 trillion.
Ant Group itself was set for an initial public offering (IPO) that would have been the largest in world history – dwarfing even Saudi Aramco. But, it all came crashing down after company founder Jack Ma criticized the Chinese financial regulatory landscape at an event in October 2020.
Since then, it’s been a barrage of attacks. The Chinese government launched an antitrust investigation into Alibaba at the end of last year and even created new anti-monopoly policies in February that were targeted at large internet companies.
Eventually, Ant’s dual IPO was pulled. The government stated that it would prefer for Ant Group to return to its original business of payment processing, while also correcting issues with its auxiliary business ventures – including insurance, asset management, and lending.
The attacks didn’t stop there. Ant Group has had to pay successive fines, and Alibaba’s entire worth has plunged to about half of what it was at its peak.
An Industry-Wide Crackdown
Of course, it is worth noting that Alibaba isn’t the only recipient of China’s ire. Tech companies in the country have been hit hard across verticals. Whether it’s ride-hailing giant Didi, whose app was removed from stores at the government’s request; or language-learning platform Duolingo no longer being available in the country after the government banned for-profit tutoring.
Everyone – no matter the size – has felt the sting of the Chinese government’s ban. Just last week, the Peoples’ Bank of China announced that it would coordinate with several government agencies to make cryptocurrency transactions illegal in the country. This decision has forced no less than 18 crypto companies to leave the country already, with more set to pack and exit eventually.
What China’s Tech Crackdown Means
The impacts of this crackdown are more than just the losses suffered by the companies in question – although those are still quite extensive. CNBC has reported that the tech crackdown has already wiped billions off the value of several top Chinese tech stocks. The companies in question have also had to switch their business models to comply with the government’s demands.
With stocks taking a dump, many across the country have lost significant parts of their fortunes. Companies like Tencent and Alibaba made people millionaires through stock options and were able to offer these options to attract some of the best talents in the industry. Now, all of that is gone.
There is also the blow that it lands on the companies and their customers. Ant Group offers payment processing to hundreds of millions in the country, while its auxiliary services have also been instrumental in helping people to manage their finances. All of that is now gone.
The same can be said for Duolingo, whose services are used by millions in China. The concept of for-profit tutoring might not seem like the noblest, but Duolingo had helped many to pick up new languages.
And on and on the list goes.
It’s Not All Bad
As an investor, your biggest concern about all of this will be the impact of these rules on China’s tech sector and index. Well, you should know that things aren’t all bad.
Like it always does, the market is looking to recover. Companies are adapting quite well to the crackdown and tweaking their business models, meaning that there is still an opportunity for investors to make money. If you’re looking for options to invest in, here are some top choices for you:
Interestingly, Alibaba remains the top option for people looking to get into Chinese stocks. The company might have taken a beating this year, but it is still popular for investors looking to get long-term gains.
An interesting survey showed that Alibaba remains highly popular among hedge funds in 2021. More hedge funds added it to their portfolios this year, showing that they still believe in the company. Dips always present opportunities to make money, and Alibaba is still in a strong position.
Tencent Holdings (TENCENT-HKEX)
Tencent is one of Alibaba’s fiercest competitors. The company has managed to solidify itself as a major player in the global tech space, and its stock has been looking to stabilize in the wake of the Chinese government’s attacks.
Recently, Tencent’s stock slid 8.48 percent as the Chinese government summoned it – as well as other tech firms. But, despite the government’s attacks, big investors are confident in Tencent. One such investor is Ark Invest – the top fund anchored by legendary investor Cathie Wood.
Li Auto (LIAUTO-NDAQ)
Li Auto is one of China’s biggest car companies. It is also a leader in the electric vehicle industry, going toe-to-toe with names like Tesla. The company is in an interesting position; it originates from the world’s largest market for electric vehicles, meaning that it is in a position to benefit from indigenization policies that the government might impose once these vehicles go mainstream.
Li also recently shared that it expects to ramp up vehicle deliveries going forward. This may be a possible bullish sign.
KraneShares CSI China Internet ETF (KSCHINAWEB-NYSE)
The KraneShares CSI China Internet ETF is one of China’s biggest tech exchange-traded funds (ETFs). It offers exposure to a basket of top Chinese tech stocks, offering an opportunity to buy into these companies while also stabilizing value.
ETFs are especially great for investors looking to hedge their bets. In that regard, the KraneShares CSI China Internet ETF offers exposure to some of the biggest names in Chinese tech. It is also the only ETF that offers pure-play exposure to Chinese software and IT firms.
Phillip Futures MT5 – Your Partner in Trading Chinese Tech Stocks
If you’re looking to increase your exposure to Chinese tech stocks, then you could definitely leverage on the Share CFDs. A share CCFD is a contract that reflects the performance of a specific security or stock with the profit (or loss) calculated as the difference between the buying and selling price. You don’t physically own the underlying stock, but you own a contract that trades on the stock’s performance.
Share CFDs have become especially popular among investors today. If you’re looking to get into the market, the Phillip Futures MetaTrader 5 (MT5) trading platform is a great service to use.
The M5 trading platform from Phillip Futures offers access to over 20 top Chinese tech stocks, ranging from Alibaba and Tencent to JD.com and Didi. These companies – and much more – are accessible to you via the MT5 platform. You get to enjoy zero commissions on trades, as well as no platform fees or minimum fees payable.
Besides trading, the Phillip Futures MT5 trading platform offers everything you need to make proper investment decisions. You get charting and analysis tools, including the popular Trading Central indicators and Autochartist.
The service also connects you with top expert advisors, so you can refine and finetune your trading strategies as you see fit. Even better, you have webinars available from some of these expert advisors to improve your knowledge of the market.