Can the Invesco China Tech ETF bounce back?


TChinese government regulatory crackdown and concerns about the health of its economy weighed on the share price of the Invesco China Tech ETF [CQQQ].

The ETF, launched in 2009, invests in stocks mainly involved in information technology and communication services.

The huge growth of Chinese technology companies, especially in the e-commerce sector, in recent years as the economy has surged, has boosted CQQQ. Demand for Chinese products and services, both at home and abroad, has also helped the ETF to rise in value.

It jumped 174.6% between December 31, 2018 and February 16, 2021.

A crackdown on tech companies

However, the ETF has since bypassed, with its price plunging 37% until Oct. 14 as the Chinese government raised monopoly concerns over its tech titans. This included antitrust regulators fining e-commerce giant Alibaba a record $ 2.8 billion. [BABA] in September.

Crackdown on gaming content by antitrust regulators could crush Baidu [BIDU] proposed acquisition of the Singaporean company JOYY’s [YY] video-based social platform, YY Live. “Very lax” until a few months ago, China has become “one of the most active and forceful jurisdictions in regulating the digital economy,” wrote Angela Zhang, anti-monopoly expert at Hong Kong University Law School in a recent article. .

$ 2.8billion

Assessment of fine imposed on Alibaba by antitrust regulators

As a result, according to Yahoo Finance, CQQQ stock posted a total daily return of minus 16.97%. Its total net assets stand at $ 1.86 billion.

This could be a problem in the short term, with a government trying to re-impose control over several private sectors that may have grown too big and too powerful for its liking.

Spiritual opium and advertising

Tencent [TCEHY] The share price also fell as the company cracked down on the time children could spend playing its computer games after the Chinese government said the gaming industry was peddling “spiritual opium.”

Effective November 1, the government is introducing stricter data protection laws that prohibit companies from disclosing information without customer permission and limit the amount they are allowed to collect, reported The independent. This will make it more difficult for them to generate income from advertising.

Data is often the lifeblood of tech companies, and these rules should further affect tech stock prices and CQQQ.

The CQQQ holds 114 positions including Tencent with the largest weighting at 9.4%, Meituan [03690] at 9.01%, Baidu at 8.35% and Bilibili search engine [BILI] at 7.35%.

Chinese economic struggles

It’s not just technological terrors that are plaguing the CQQQ stock price. Investor sentiment is also affected by the woes of the once powerful Chinese economy. It has slowed down due to restraint in consumer spending, flooding and lingering concerns about COVID.

There was also another government crackdown – this time on property, which blasted real estate giant Evergrande and sent shockwaves through Chinese and overseas markets.

At the end of September, the rating agency Fitch revised downwards its forecasts for Chinese growth, specifying that “the main factor weighing on the outlook is the slowdown in the real estate sector”.

Tensions over a US-China trade war and a potential military conflict over Taiwan have added to the uncertainty. Seeking Alpha sees some light in Sino-US relations, which could improve the investment situation and CQQQ.

“With almost all private and institutional investors being underweight Chinese equities, any potential rebound ahead is likely to surprise many investors and short sellers” – Larry Cheung

Rebound potential

“With nearly all retail and institutional investors underweight Chinese equities, any potential rebound ahead is likely to surprise many investors and short sellers,” wrote Larry Cheung. A return to near-rock bottom stocks may “cause a mad rush for high-quality Chinese Internet names,” Cheung added.

Alex Au, managing director of Alphalex Capital Management HK Ltd sold the company’s Chinese tech holdings last month and has now built up short positions in the stocks it once backed, reported Bloomberg.

The fundamentals of demography and a growing middle class remain solid in China, however. The young population wants their technological actions to follow and perhaps even surpass the innovations of the West.

Caution remains the buzzword. For now, the CQQQ must wait and see what the government will do next.

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