Beijing stocks beating US peers on rate worries

Fine run: A public screen displays the Shenzhen Stock Exchange and the Hang Seng Index figures in Shanghai. The Nasdaq 100 has lost 13% this year, while the Hang Seng Tech is down 3%. —Bloomberg

HONG KONG: Chinese technology stocks’ year-long underperformance versus their United States’ peers is finally coming to an end.

The Hang Seng Tech Index of China’s biggest tech companies is beating the Nasdaq 100 Index this month by the most in more than a year, led by companies including online travel platform Trip.com Group Ltd and Internet giant Baidu Inc.

The prospect of rising interest rates is likely to weigh further on US tech giants, said Manishi Raychaudhuri, BNP Paribas SA’s head of Asian equity research, while Chinese stocks benefit from easier domestic liquidity, a receding government crackdown and historically low valuations.

“In the near term, we expect this outperformance to continue,” he said by email. “The pace and extent of monetary policy tightening in the US is still uncertain, implying continued risk to expensive stocks.

“On the other hand, we think much of the regulatory pressures on the Chinese Internet companies are largely behind us.”

Chinese tech shares are about to face a test as earnings season looms in March, when Alibaba Group Holding Ltd and Tencent Holdings Ltd are expected to report a quarterly profit drop of at least 47%.

The Nasdaq 100 has lost 13% this year, while the Hang Seng Tech is down 3%. Apart from the valuation dynamics, the diverging monetary policies in China and the US have fuelled the reversal.

Traders see the Federal Reserve raising interest rates six times this year to a target range of 1.5% to 1.75%, posing continued risks for highly valued US tech stocks.

On the other hand, economists expect China’s central bank to take further easing measures to spur the economy.

“Chinese authorities have recently relaxed rules on property developers, bringing hopes that policymakers may start to ease curbs on technology firms as well,” said Margaret Yang, strategist at Daily FX.

“I believe that stocks such as Alibaba and Meituan have been overly punished by regulatory crackdowns and they deserve higher valuation.”

Even after this year’s slump, the Nasdaq 100, at 24.4 times estimated earnings, is still 25% more expensive than its average for the past decade.

The Hang Seng Tech, meanwhile, is trading near the lowest valuation since the index was introduced in July 2020. — Bloomberg