China tech stocks rally as in­vestors bet on de­cou­pling with US

Wash­ing­ton’s threat to ban Chi­nese apps prompts traders to fo­cus on do­mes­tic names


Chi­nese tech stocks jumped de­spite Wash­ing­ton’s threat to ban apps in­clud­ing Tiktok, as traders in­stead fo­cused on buy­ing up names that could ben­e­fit from a de­cou­pling of the world’s two big­gest economies.

Shen­zhen’s tech- fo­cused Chinext in­dex rose 2.6 per cent on Mon­day while the Star 50 in­dex of start-ups listed on Shang­hai’s Star board soared 7.3 per cent. Those in­dices’ gains were well above the 1.6 per cent rise for the broader CSI 300 of large­cap stocks listed in both cities.

The bullish hue in China’s mar­kets came even as Mike Pom­peo, US sec­re­tary of state, warned on Sun­day that Pres­i­dent Don­ald Trump would take ac­tion in the com­ing days against Chi­nese apps. Those in­clude Bytedance’s Tiktok and Ten­cent’s Wechat, which the US claims are “feed­ing data di­rectly to the Chi­nese Com­mu­nist party, their na­tional se­cu­rity ap­pa­ra­tus”.

US soft­ware group Mi­crosoft is in talks to buy the Amer­i­can op­er­a­tions of Tiktok, de­spite Mr Trump’s reser­va­tions.

Bro­kers said Chi­nese traders were lin­ing up bets on lo­cal com­pa­nies that they be­lieve would en­joy greater sup­port from Bei­jing if the US and China con­tin­ued down a path of eco­nomic de­cou­pling.

Ex­pec­ta­tions of ben­e­fi­cial poli­cies and other forms of of­fi­cial back­ing in re­sponse to US pres­sure had been a “shot in the arm” for Chi­nese tech stocks, said Louis Tse, man­ag­ing di­rec­tor of VC Bro­ker­age in Hong Kong.

Strate­gists added that these hopes had been fu­elled by Chi­nese pres­i­dent Xi Jin­ping’s re­cent an­nounce­ment of a new pol­icy drive known as “dual cir­cu­la­tion”. The pol­icy fo­cuses on mak­ing do­mes­tic con­sump­tion China’s eco­nomic growth en­gine as well as se­cur­ing sup­ply chains in im­por­tant in­dus­tries such as tech­nol­ogy.

“Mar­kets see the op­por­tu­nity of the do­mes­tic mar­ket and that’s why they think even though China-us ten­sions will re­main in the long term . . . the Chi­nese econ­omy can still man­age,” said Ken Cheung, a strate­gist with Mizuho Bank.

The as­sump­tion here is that there’s go­ing to be dis­lo­ca­tion in the tech part of the sup­ply chain Shang­hai-based stock bro­ker Mr Xi’s pol­icy drive is partly to counter vul­ner­a­bil­i­ties in the ex­port sec­tor due to tariffs im­posed on Chi­nese goods by the Trump ad­min­is­tra­tion.

An­a­lysts point out that ef­forts to re­ori­ent the Chi­nese econ­omy around do­mes­tic con­sump­tion are also likely to re­sult in lower de­mand for im­ported goods. “You must con­tract im­ports if you are go­ing to see lower ex­ports and still want to main­tain a trade sur­plus,” said Michael Ev­ery, global strate­gist at Rabobank.

The Star 50 in­dex track­ing Shang­hai’s tech-ori­ented Star board, which launched last year, has added more than 60 per cent in 2020 so far. Among its top gain­ers on Mon­day were Raytron and Bei­jing Piesat, mak­ers of elec­tronic cir­cuits and satel­lite imaging soft­ware, re­spec­tively. Both closed the day up more than 15 per cent.

“The as­sump­tion here is that there’s go­ing to be dis­lo­ca­tion in the tech part of the sup­ply chain,” said a di­rec­tor at one Shang­hai- based bro­ker, who added that Chi­nese state me­dia’s use of “dual cir­cu­la­tion” had picked up vis­i­bly in the last week.

Lo­cal com­pa­nies, he said, “will have fund­ing and the prod­ucts will have de­mand be­cause the pol­icy is clearly to limit de­pen­dence on for­eign com­pa­nies”.

Shang­hai’s tech-fo­cused Star board, which launched last year, surged on Mon­day © Reuters

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