Why Investors Can'T Stop The Carnival Of Global Technology Stocks?

With the return of heavyweight Chinese stocks such as Alibaba, technology stocks have become the new driving force to lead the Hong Kong stock market.

Since this year, the overall trend of Hong Kong stocks has been weak, and the market differentiation has become increasingly obvious. Alibaba, Tencent, meituan and Jingdong, the leading technology stocks known as "atmx", rose strongly and reached new highs.

By the end of August 27, Alibaba (09988. HK) had risen for four consecutive trading days, with a cumulative increase of more than 11%. The year to date increase was about 25%, and its market value exceeded HK $6 trillion. So far this year, Jingdong (09618. HK) has risen by more than 35%, Tencent Holdings (00700. HK) has risen by 46%, and meituan review (03690. HK) has soared by 156%.

"The return of China concept shares to Hong Kong has transferred a part of the trading volume to Hong Kong. For investors, they can invest in these leading technology stocks in the Hong Kong stock market, which is beneficial to the trading activity and turnover of Hong Kong stocks, further improving the status of Hong Kong stocks and attracting more return of China capital stocks." Yang Delong, chief economist of Qianhai Kaiyuan, told reporters of the 21st century economic report.

At the same time, due to the strong growth of these leading technology stocks, the funds going south through the "Hong Kong stock connect" have also been heavily invested in these stocks. According to the statistics of 21st century economic report, in the past 20 trading days, meituan reviews and Tencent holdings recorded net capital inflows of HK $11.981 billion and HK $4.029 billion respectively, ranking among the top three targets of "Hong Kong stock connect" to buy funds southward.

In contrast, SMIC, Bank of China, China Construction Bank and rongchuang China are still the main targets of fund selling. In the past 20 trading days, net capital outflows of HK $2254 million, HK $814 million, HK $737 million and HK $694 million have been recorded respectively.

China capital stock moves to Hong Kong

It is understood that as the United States continues to tighten the Listing Supervision of China capital stock, several major institutional shareholders of Alibaba have recently said that they will convert their holdings of American Depository shares (ADR) into Hong Kong shares. Since November last year, a total of 1.952 billion ADR shares have been converted into Hong Kong shares, and the number of shares in circulation in Hong Kong has increased to more than 2.5 billion. Taking about 4.8 billion registered shares of Ali in Hong Kong, the circulating shares account for more than half.

Alibaba shareholders, including Temasek, British fund Baillie Gifford & Co and Matthews Asia, recently intend to convert their Alibaba ADR holdings into Hong Kong shares.

Temasek spokesman confirmed to the media that about 12.1 million shares of Alibaba ADR have been converted into Hong Kong shares, with a value of about US $3 billion. In the second quarter of this year, Baillie Gifford transferred 10.4 million shares of Alibaba ADR worth about $2.67 billion into Hong Kong listed shares, equivalent to one-fifth of its shares.

According to the data, Alibaba, jd.com and Netease, the three leading companies returning to Hong Kong stock market, have accounted for 54% of the total trading volume of China capital stock in the United States. Xia Chun, chief economist of Noah wealth, pointed out to the 21st century economic reporter: "five years ago, Chinese companies preferred to list on the US market, followed by Hong Kong. Now it's completely reversed. There are very few companies going to the United States to list. It is likely that some Chinese stocks will return to the mainland. This will improve the long-term trading of Chinese and Asian Pacific companies

In his view, more and more institutional investors will transfer their holdings of US stocks to Hong Kong stocks, which will undoubtedly become a major trend. "In fact, there are not many advantages of listing in the United States. Listing is easy, but the cost of supervision is very high. Now investors are becoming more rational and focus on the company itself rather than where to list."

In fact, due to the increasing number of Alibaba shares transferred to Hong Kong shares, the trading volume of Hong Kong shares has also increased significantly. In the nine months since November last year, the average daily turnover of Alibaba Hong Kong shares was about 23.28 million, with a turnover of HK $4.9 billion. The average daily turnover of us ADR was 17.62 million shares, with a turnover of US $3.8 billion. From June to August this year, the proportion of transactions of Hong Kong shares to us shares has increased to about 20%, far higher than that of 13% to 15% at the beginning of the year.

Xu Yibin, executive director and chief executive officer of yaocai securities, said that as new economy stocks became a hot sector and more and more new economy enterprises went to Hong Kong for listing, the pattern of Hong Kong stocks dominated by traditional economy such as real estate and finance will be completely reversed. The average daily turnover of Hong Kong stock market in the first half of this year was HK $100 billion, up 33% year-on-year.

The first Technology Index ETF

On July 27, the Hang Seng technology index, known as the "Hong Kong version of the Na index", was officially launched. It is the third flagship index in the Hong Kong stock market after the Hang Seng Index and the Hang Seng state-owned enterprise index.

Despite the Hang Seng Index's low, the Hang Seng technology index has risen by more than 56% so far this year. The index will track the top 30 technology companies listed in Hong Kong after screening, covering five major industries, including information technology, non essential consumption, industry, finance and health care. Alibaba, Tencent, Xiaomi, meituan reviews and sunny optics (02382. HK) all account for more than 8% of the index.

The market looks forward to the future of a large number of China General stocks return, including Baidu, iqiyi, B station, etc. The inclusion of constituent stocks of Hang Seng technology index will be adjusted once a quarter. If the performance of new shares on the first day of listing is better than the top 10 existing constituent stocks, they can be directly included into the constituent stocks after 10 days. This system will undoubtedly provide a "green channel" for the future listed technology unicorn and China capital stocks.

Industry insiders believe that the index will help to enhance investors' interest in technology stocks listed in Hong Kong, especially some investors who invest in Nasdaq in the United States are expected to turn to the Hong Kong market. According to Citi's statistics, by the end of June this year, the number of technology stocks listed in Hong Kong had increased from 137 at the end of 2017 to 163. In terms of market value, the share of technology stocks has increased significantly from 14.6% in 2017 to 33.2%, and the proportion of trading volume has also increased from 16.3% to 27.6%.

Photo by Gan Jun

With the structural changes brought about by a number of technology giants to the Hong Kong stock market, according to the 21st century economic report reporter, southern Dongying asset management company will officially launch the first Hang Seng Technology Index ETF on August 28. Compared with the traditional large cap stocks, the volatility of technology stocks is greater, so ETF can help investors capture the growth of technology stocks and achieve lower volatility than individual stocks.

"Recently, many of our customers are interested in the passive products of Hang Seng technology index. They hope to carry out more non US dollar asset allocation and realize the purpose of diversifying investment in the science and technology network stock sector." Zheng Zifeng, Asia managing director and head of Asian Equity Strategy Department of JPMorgan private bank, told 21st century economic news that there was still 15% - 20% room for the index to rise by the end of this year.

Zheng Zifeng said frankly that the epidemic has accelerated the digital transformation of the global economy, and investors are actively looking for the target of structural growth theme, "we suggest that investors can rotate and increase their positions in small and medium-sized stocks with low P / E ratio and guaranteed profits, rather than continue to chase those large cap stocks. Take Hong Kong stocks as an example, the valuations of some game oriented companies are already too high. In contrast, the valuations of some leading e-commerce companies still have room for further improvement. "

Is technology stock bubble in US stock market?

Since the beginning of the year, long technology stocks have been recognized as the "most crowded trading" in the market. According to the latest August fund manager survey released by Bank of America Merrill Lynch, with the new crown pneumonia epidemic changing the way people work, learn and shop, long US technology stocks and growth stocks have become the "most crowded" trading for the fourth consecutive month. Buying technology stocks is still the most popular investment strategy for fund managers, followed by gold.

As a leading indicator of US technology stocks, the Nasdaq 100 index has risen by 37% so far this year and nearly 10% since August this year. This round of increase is mainly led by technology giants such as apple, Tesla and Amazon, and superimposed on the monetary easing and stimulus policies launched by the global central bank. Apple has risen 70% so far this year, and its market value has broken through the $2 trillion mark, becoming the mainstay of the US stock market, while Tesla's share price has soared by more than 400%.

However, there are still some differences on whether this round of feast of technology stocks can be sustained. At present, investors for this carnival obviously some "can't stop.". According to IHS Markit, the proportion of short positions in ETFs tracking the Nasdaq 100 index is only 1.5%, a new low since March 2019.

"The world is now in the midst of the biggest monetary stimulus in history, leading to a flood of liquidity and the flow of capital into risky assets. In the next six to nine months, I don't think there will be a big market downturn. " Carlos Diez, founder and CEO of marketgrader, told reporters. "For some large cap stocks, the recent market reaction has been a bit too crazy, I need to calmly think about what will happen in the short term."

Even though global technology stocks have outperformed the market by about 25% this year, they are not comparable to the dotcom bubble of the late 1990s, said mislav matejka, an analyst at JPMorgan Chase. According to the report, the bull market of technology stocks in this round is supported by strong profits rather than pure market speculation. In terms of valuation level, the price earnings ratio of MSCI global technology index is only 5% higher than the historical median. Therefore, the report believes that the bull market in technology stocks may continue and suggests investors to increase the price.

According to J.P. Morgan, the overall second quarter earnings of US stocks fell 33% year-on-year, but the profits of technology stocks, daily necessities stocks and biotechnology stocks rose against the trend. In addition, the balance sheet of technology stocks is strong and enterprises have a large amount of cash inflow, which is quite different from the situation of 2000 Kewang stock bubble.

David kostin, a strategist at Goldman Sachs, also advised investors to increase their exposure to technology stocks in a low interest rate environment. However, he pointed out that many mutual funds' holdings of the top five U.S. technology stocks are close to the 5% individual stock holding limit, and there is limited space for them to continue to increase their holdings in the future. Meanwhile, the U.S. Congress has conducted an anti-monopoly investigation on the five major technology stocks, and there is a risk that the stock prices will fall in the short term.

"The current valuation of US stocks is indeed on the high side, but there is too much money in the market now, and the funds mainly stay in the financial market, which is easy to form asset bubbles. The new economy industry pursues the rule of all winners. From the perspective of stock investment, investors bet on the future rising space and future profit growth of enterprises. There is a bubble in the market, but we can't confront the market. " A foreign fund manager told reporters.