Get the Best of Both Worlds as Chinese Tech Firms Rally
In a part of the market fraught with danger and opportunity, this name offers both high growth potential and limited risk.
Chinese tech companies have been under a tremendous amount of pressure for the last several months as regulators crack down on some of the largest and most influential tech firms in the country.
Last week, I wrote to you about the recent headwinds that a number of Chinese tech stocks – particularly those that trade on foreign exchanges – have been facing.
As the Chinese government cracks down on what it deems security risks and antitrust violations, the share price of some of China’s biggest tech companies have suffered.
In total, more than $823 billion of market value has been erased from 10 of China’s largest technology companies since February.
The Chinese government has issued a stern warning to its biggest companies that it will be holding them to a much more rigid standard for data security.
But amid all the gloom and doom surrounding Chinese companies lately, there was a noteworthy headline in the news this week that is giving investors a glimmer of hope that the beleaguered Chinese tech stocks could be in store for a big rebound soon.
And I know the perfect way to play it.
Find out more here…(JUMPLINE)
Where’s the money?
After months of what seemed like a relentless attack on Chinese tech companies, investors got a bit of good news yesterday.
Tencent Holdings Limited (TCEHY) received approval from the Chinese State Administration for Market Regulation to move forward with its acquisition of search engine developer Sogou – China’s second largest search engine.
The approval went a long way toward easing investors’ concerns over the sector, and led to a rally in a number of Chinese tech stocks. Not only did TCEHY jump more than 4% yesterday, but Alibaba Group Holding Limited (BABA) rose as much as 3.5% and JD.com, Inc. (JD) soared nearly 6%.
Despite the slightly more positive outlook for Chinese tech stocks, the space is still fraught with danger. Make no mistake, the Chinese government is far from done with its tech crackdown.
Even as Tencent got the good news on its Sogou merger, regulators nixed another potential acquisition between DouYu International Holdings Ltd. and Huya Inc., citing the fact that the deal would give Tencent an anti-competitive advantage in the game streaming industry.
But even though there are potential pitfalls, there is far too much profit potential to just stay out of the Chinese tech market all together.
So, I’ve got a great investment recommendation that will allow you to enjoy the growth of the industry while limiting exposure to a single company running afoul of Chinese regulators.
How do I get some?
KraneShares CSI China Internet ETF (KWEB) is an investment vehicle that offers traders a basket of Chinese tech stocks.
Among its largest holdings are Alibaba Group Holding Limited (BABA), Tencent Holdings Limited (TCEHY), and JD.com, Inc. (JD) – just to name a few.
With Chinese tech stocks back on the rise but danger still lurking around every corner, this might be the perfect way to play the industry while limiting risk.
And traders are starting to pile into this ETF.
Earlier this week, S.C.A.N. identified a huge call buyer in KWEB, giving us an indication that even large Wall Street institutions are seeing the potential for big gains in KWEB.
With shares of KWEB still more than 38% below its February high, I think this is a great way to play the rebound in Chinese tech stocks over the next few weeks and months.
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In the Spotlight: More good news for Big Tech
Tech investors have had no shortage of things to worry about lately.
Among the chief concerns was the proposed tax that the European Union was considering levying on Silicon Valley firms.
But instead of unveiling the details of the new tax yesterday, the EU did the exact opposite.
After an avalanche of pushback over the proposed tax, including U.S. Treasury Secretary Janet Yellen categorizing it as “discriminatory,” the EU has decided not to move forward with its plan to impose new taxes on foreign tech companies with sales of more than 50 million euros.
Investors in U.S. mega-tech companies like Facebook, Amazon, and Google can breathe a sigh of relief – for now, anyway.
Despite the pause, a European commission spokesperson hinted that plans to impose the tax could still move forward in the future as the EU attempts to curb the use of tax havens and encourage more tech companies to set up shop in Europe.
There is sure to be a lot of back and forth maneuvering and negotiations surrounding the potential tax on big tech in Europe in the coming months. And as more developments unfold, I will be keeping you up to date here at Profit Pregame.