ETFs
Should you buy China Tech ETFs after David Tepper and Michael Burry?
The technology investment landscape in China continues to evolve, particularly in the areas of artificial intelligence (AI) and the electric vehicle (EV) sector. The space has recently seen a significant shift in investor sentiment due to a notable impact on the development of AI and a growing association with the electric vehicle industry.
Most Chinese tech ETFs have rallied recently. And why not? David Tepper’s Appaloosa is betting big on Chinese technology stocks, as cited on CNBC. Michael Burry also bet on big Chinese technology. Burry, made famous by the book The Big Short, snapped up Chinese tech stocks after exiting them at some point in 2023.
Chinese tech ETFs likeKraneShares CSI China Internet ETF KWEB, KraneShares Hang Seng TECH Index ETF KTEC, Invesco China Technology ETF CQQQ, and iShares MSCI China Multi-Sector Technology ETF TCHI added 12.5%, 15%, 12.8% and 12.3% respectively last month (as of May 22, 2024). Among these, TCHI offers a high dividend yield of 4.00%.
While most of these ETFs don’t currently have an optimistic Zacks Rank, things could improve in the near term. Some analysts expect a potential rebound, supported by a transition to new technologies. Let’s dig a little deeper.
Rapid Chinese technology partnership on electric vehicles
Foreign automakers are flocking to join their Chinese counterparts in artificial intelligence and other smart car technologies. from Japan Toyota engine TM announced that it would partner with Chinese gaming and social media giant Tencent on AI and big data.
Furthermore, the Japanese Nissan also announced a merger with a Chinese technology company. Baidu BIDU to conduct research on AI and “smart cars”. German auto giant Volkswagen was also seen promoting its partnership with Chinese startup XPeng.
A Renault executive recently mentioned engaging in “crucial conversations” with Chinese electric vehicle maker Li Auto and Xiaomi to look into electric vehicle and smart vehicle technologies. Xiaomi, known for its smartphones, recently unveiled its first electric car, positioning it as a competitor to Porsche and You’re here TSLA.
Impact and investment in AI
China’s commitment to AI has remained firm, despite waning investor interest last year. In 2023, the country saw a 38% drop in AI investment, with funding plummeting 70% from the previous year. This slowdown was triggered by geopolitical tensions and regulatory hurdles that led to a cautious approach from local and foreign investors.
However, the Chinese government’s response has been proactive, with new AI rules introduced in 2024 aimed at streamlining the sector’s growth while addressing copyright and security concerns. These regulations are expected to make the future trajectory of China’s AI development more controlled and stable.
The story continues
Some Chinese tech stocks offer value
Chinese tech stocks are now value stocks: they are increasing dividends and buybacks and generating decent amounts of cash at cheap valuations. Positive earnings reports were also released by Alibaba, Baidu (BIDU), JD.com (JD).
Alibaba’s (BABA) P/B (most recent quarter or MRQ) is 1.47X compared to Internet & Commerce’s underlying P/B of 2.56X. Price to cash flow ratio (most recent fiscal year or MRFY) is 9.24X compared to the industry measure of 14.07X.
JD.com (JD), which is also from the Internet Commerce industry, has a P/B of 1.32X and a P/CF of 9.40X, indicating that the stock is trading at a discount to the industry underlying.
Baidu’s (BIDU) P/B is 1.03X to the underlying Internet – Services industry’s P/B of 2.09X. Price to cash flow ratio (most recent fiscal year or MRFY) is 5.89X compared to the industry measure of 11.02X.
Weaknesses?
Despite the growth potential, the space has inherent weaknesses. The technology sector’s dependence on government policies and the current geopolitical landscape present risks to investment stability. Additionally, the profit growth rates of most Chinese technology companies lag those of their underlying industries.
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Toyota Motor Corporation (TM): Free Stock Analysis Report
Baidu, Inc. (BIDU): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
KraneShares Hang Seng TECH Index ETF (KTEC): ETF Research Reports
Invesco China Technology ETF (CQQQ): ETF Research Reports
KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
iShares MSCI China Multisector Tech ETF (TCHI): ETF Research Reports