Chart 1 - Lion-OCBC HSTech ETF (listed in SGX), daily chart
The Lion-OCBC HSTech ETF (listed in SGX) tracks the Hang Seng Tech Index which is made up of the top 30 tech companies listed in Hong Kong by market cap.
After correcting 46% from its peak in Feb 2021 (see above Chart 1), the ETF is showing some signs of price stabilization (aka basing pattern) as price hits a double bottom in late Aug and early Oct.
With the KST indicator diverging positively from price action, often an indication of weakening of current trend and subsequent trend reversal, we can also see now that price is breaking above the 8-mth downtrend line (purple dotted).
If you wish to buy but do not want to chase the momentum, you can consider to wait for price action to pull back until Stochastic indicator (orange arrow) drop to oversold region, ie below 20.
Chart 2 - Hang Seng Tech Index P/E, P/B, & P/S. Source Bloomberg
Fundamental analysis wise, Hang Seng Tech Index is currently trading at an attractive valuation with P/E @ 17.5x, P/B @ 1.6x and P/S @ 1.2x. This is a much attractive level compared to its valuation back in Feb this year (see above Bloomberg Chart 2).
Comparatively, at the height of the Great Financial Crisis (GFC) back in 2009, Nasdaq 100 (stock index that tracks top 100 US tech stocks), were trading at valuation of P/E 17x, P/B 2.7x and P/S 1.6x. In hindsight, those who bought Nasdaq 100 ETF back in 2009 and held it till now, would have their investment compounding at 23%pa. At this rate, a $10k investment would have multiplied by 15x to $150k!
China’s economy had its set of problems, including the various 'Politburo self-imposed' policies targeting companies in the Tech sector. I believe back in 2009, many would have said the same regarding the US economy as well. Who would have foreseen Nasdaq rising 1500% within 13 years? Thus, investors have to be comfortable & appreciative with the risks of investing in Chinese tech stocks.
As usual, this writeup was broadcast to Clients on 22 Oct 2021 but posted here only on 25 Oct 2021.
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Chart source: tradingview / bloomberg
Image source: www.thedrum.com/opinion/2019/11/14/chinese-tech-companies-are-leading-the-new-global-innovation-revolution