The DeepSeek moment, coupled with a more market-friendly stance from the Chinese government, gave new reassurance to Chinese domestic investors who moved heavily into Chinese tech stocks. Foreign investors, Smahtin notes, have also begun to move back into Chinese tech, with a significant move into the space by hedge funds. The domestic surge has been followed by foreign capital which has helped spur the Hang Seng TECH index so much higher this year.
Comparing that index to the NASDAQ 100, Smahtin notes that the Hang Seng TECH is more concentrated to only 30 names, with more of a tilt towards internet and consumer tech names than the semiconductors and hardware companies on the NASDAQ. He notes a series of nuances around H shares listed on the Hong Kong Stock Exchange, which differ from A shares and can come with more sensitivity to Chinese regulatory tone.
The role of the Chinese state is one that investors always have to consider when investing in that country. Past bull runs in China, even in Chinese tech, have been curtailed by state intervention. Investors can feel like they have been burned before and Smahtin acknowledges that factor as a headwind for Chinese tech. He notes other areas of risk, notably a somewhat lacklustre Chinese economy and the potential for further economic challenges ahead. That said, he argues that the prospect of tech exposure at better relative valuations makes Chinese tech worth considering.
Smahtin notes that the S&P 500 IT index is trading at a 12-month forward P/E ratio of around 29.2. The Hang Seng TECH index is sitting closer to 21.3. While that might seem somewhat elevated relative to value, those kind of multiples for the tech sector in the middle of a bull market represent more attractive valuations. Moreover, Smahtin believes that foreign capital seeking cheaper access to tech and the AI theme may see Chinese tech as a means of achieving that goal.
The rally in Chinese tech has, so far, not extended into other sectors of the Chinese equity market. Smahtin notes that those economic headwinds are more acutely felt in other Chinese sectors, and the hangover from the country’s real estate bust is still not completely dealt with. He sees avenues for wider growth, possibly through infrastructure expansion to support Chinese AI or additional fiscal stimulus by the Chinese government.
