OUR TACTICAL MOVE: CHINA TECH

 

Our portfolio has grown well last year due to careful asset selection into strong structural growth companies and funds which include tech and healthcare.

Why China Tech?

Our latest call is a tactical move to take advantage of the drop in the China stock market, especially the tech sector. Alibaba has fallen 30%, Tencent 20%, Baidu 42%, and Meituan 40% (as of 28th May 2021)1 from their peaks due to Chinese government antitrust regulations and made investors lose confidence in the tech companies. Many tech firms including Alibaba, Baidu Inc, and Tencent Holdings were fined for violating anti-monopoly rules3.

Another reason for the drop was due to monetary tightening by the policymakers to mop up excess liquidity which might lead to asset bubbles. Even though these moves have caused uncertainties, we think such a pre-emptive move is comforting to prevent a bubble from forming at its nascent phase. As the Chinese tech stocks are correcting due to factors outside of the fundamentals, the tech stocks becoming 25% cheaper represents a substantial discount and opportunity.

Source: MSCI.com; Past performance is NOT indicative of future performance

We also think it is an opportunity to buy into China Tech currently as it is vying with US for Tech supremacy and hence the Chinese government should want its largest and strongest companies to thrive over time instead of killing them. It is likely the recent hard penalties are there to serve a warning to these companies not to forget who is the Big Brother in China instead of dealing them a death blow.

Has it happened before?

We believe that this crackdown that is happening to Chinese tech companies is similar to what happened in 2018 when Tencent’s share price took a hit of 44% (with about $200B in market value wiped off the market) when new games were banned from publishing since March that year. However, Tencent remained the largest gaming company in the world, and their revenue continued to climb over the years with diversified income streams across their ecosystem of games, social network, and fintech and business services as well as from advertising.

Source: Statista

Source: US-China Institute

Source: Yahoo Finance; Past performance is NOT indicative of future performance

As an example of a tech company with structural growth, Tencent recovered 191% after the last drop, so don’t wait to buy in on the current opportunity with China tech.

This is our view of asset allocation in the current environment, and we look to dynamic asset allocation which gives us the best assurance of keeping our assets safe, while making good returns over time:

Having a dynamic asset allocation also means that our investment is not simply set by an algorithm, as disruptions and innovations that will bring about the next success story are most probably not just determined by datasets in the past.

If you think you might have a portfolio that might not be properly diversified or not sure of which asset classes to select, do speak to your Unicorn Consultant if you would like know more or have further queries.

Note: We had increased the frequency of our communication with you during turbulent times. We will continue to communicate monthly with you during usual times.

Sources:

  1. Yahoo Finance
  2. Reuters

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