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Should You Buy China Tech ETFs Following David Tepper & Michael Burry?
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China’s tech investing backdrop continues to evolve, particularly in the realms of artificial intelligence (AI) and the electric vehicle (EV) sector. The space has recorded a significant shift in investor sentiment lately due to a notable impact on AI development and an increasing association with the EV industry.
Most China tech ETFs have turned around lately. And why not? David Tepper’s Appaloosa is betting big on Chinese tech stocks, as quoted on CNBC. Michael Burry too raised betson China big tech. Burry, made famous by the book The Big Short, has been binging on Chinese tech shares after exiting them at one point in 2023.
China tech ETFs likeKraneShares CSI China Internet ETF (KWEB - Free Report) , KraneShares Hang Seng TECH Index ETF (KTEC - Free Report) , Invesco China Technology ETF (CQQQ - Free Report) , and iShares MSCI China Multisector Tech ETF (TCHI - Free Report) have added 12.5%, 15%, 12.8%, and 12.3%, respectively, past month (as of May 22, 2024). Among these, TCHI offers a hefty dividend yield of 4.00%.
Although most of these ETFs do not have an upbeat Zacks Rank currently, things could turn around for the better in the near term. Some analysts expect a potential rebound, supported by a shift toward new technologies. Let’s delve a little deeper.
Rapid Chinese Tech Partnership on EVs
Foreign carmakers are flocking to join Chinese counterparts in artificial intelligence and other smart car technology. Japan’s Toyota Motor (TM - Free Report) announced that it would team up with Chinese gaming and social media giant Tencent on AI and big data.
Separately, Japan’s Nissan also announced a tie-up with Chinese tech firm Baidu (BIDU - Free Report) to carry out research on AI and “smart cars.” German auto giant Volkswagen was also seen promoting its partnership with Chinese EV startup XPeng.
An executive from Renault lately mentioned engaging in "pivotal conversations" with Chinese EV manufacturer Li Auto and Xiaomi to delve into electric vehicle and smart-vehicle technologies. Xiaomi, renowned for its smartphones, recently unveiled its inaugural electric car, positioning it as a competitor to Porsche and Tesla (TSLA - Free Report) .
Impact and Investment in AI
China's commitment to AI has been firm, despite facing a decline in investor interest last year. In 2023, the country experienced a 38% drop in AI investments, with funding plummeting by 70% from the previous year. This downturn was triggered by geopolitical tensions and regulatory hurdles that have led to a cautious approach from both local and foreign investors.
However, the Chinese government's response has been proactive, with new AI rules introduced in 2024 aiming at streamlining the sector's growth while addressing copyright and safety concerns. These regulations are expected to make the future trajectory of AI development in China more controlled and stable.
Some Chinese Tech Stocks Offer Value
Chinese technology stocks are now value stocks: They are boosting dividends and buybacks and are generating decent amounts of cash at cheap valuations.There have also been positive earnings reports from Alibaba, Baidu (BIDU - Free Report) , JD.com (JD).
Alibaba’s (BABA) P/B (Most Recent Quarter or MRQ) is 1.47X versus the underlying Internet - Commerce industry’s P/B of 2.56X. Price/Cash Flow (Most Recent Fiscal Year or MRFY) is 9.24X versus the industry measure of 14.07X.
JD.com (JD), which also hails from the Internet - Commerce industry, has a P/B of 1.32X and P/CF of 9.40X, which indicates that the stock is trading at a discount to the underlying industry.
Baidu’s (BIDU - Free Report) P/B is 1.03X versus the underlying Internet – Servicesindustry’s P/B of 2.09X. Price/Cash Flow (Most Recent Fiscal Year or MRFY) is 5.89X versus the industry measure of 11.02X.
Any Weaknesses?
Despite the potential for growth, there are inherent weaknesses in the space. The tech sector's reliance on government policies and the ongoing geopolitical landscape pose risks to the stability of investments. Plus, most Chinese tech companies’ earnings growth rates are below their underlying operating industries.
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Should You Buy China Tech ETFs Following David Tepper & Michael Burry?
China’s tech investing backdrop continues to evolve, particularly in the realms of artificial intelligence (AI) and the electric vehicle (EV) sector. The space has recorded a significant shift in investor sentiment lately due to a notable impact on AI development and an increasing association with the EV industry.
Most China tech ETFs have turned around lately. And why not? David Tepper’s Appaloosa is betting big on Chinese tech stocks, as quoted on CNBC. Michael Burry too raised betson China big tech. Burry, made famous by the book The Big Short, has been binging on Chinese tech shares after exiting them at one point in 2023.
China tech ETFs likeKraneShares CSI China Internet ETF (KWEB - Free Report) , KraneShares Hang Seng TECH Index ETF (KTEC - Free Report) , Invesco China Technology ETF (CQQQ - Free Report) , and iShares MSCI China Multisector Tech ETF (TCHI - Free Report) have added 12.5%, 15%, 12.8%, and 12.3%, respectively, past month (as of May 22, 2024). Among these, TCHI offers a hefty dividend yield of 4.00%.
Although most of these ETFs do not have an upbeat Zacks Rank currently, things could turn around for the better in the near term. Some analysts expect a potential rebound, supported by a shift toward new technologies. Let’s delve a little deeper.
Rapid Chinese Tech Partnership on EVs
Foreign carmakers are flocking to join Chinese counterparts in artificial intelligence and other smart car technology. Japan’s Toyota Motor (TM - Free Report) announced that it would team up with Chinese gaming and social media giant Tencent on AI and big data.
Separately, Japan’s Nissan also announced a tie-up with Chinese tech firm Baidu (BIDU - Free Report) to carry out research on AI and “smart cars.” German auto giant Volkswagen was also seen promoting its partnership with Chinese EV startup XPeng.
An executive from Renault lately mentioned engaging in "pivotal conversations" with Chinese EV manufacturer Li Auto and Xiaomi to delve into electric vehicle and smart-vehicle technologies. Xiaomi, renowned for its smartphones, recently unveiled its inaugural electric car, positioning it as a competitor to Porsche and Tesla (TSLA - Free Report) .
Impact and Investment in AI
China's commitment to AI has been firm, despite facing a decline in investor interest last year. In 2023, the country experienced a 38% drop in AI investments, with funding plummeting by 70% from the previous year. This downturn was triggered by geopolitical tensions and regulatory hurdles that have led to a cautious approach from both local and foreign investors.
However, the Chinese government's response has been proactive, with new AI rules introduced in 2024 aiming at streamlining the sector's growth while addressing copyright and safety concerns. These regulations are expected to make the future trajectory of AI development in China more controlled and stable.
Some Chinese Tech Stocks Offer Value
Chinese technology stocks are now value stocks: They are boosting dividends and buybacks and are generating decent amounts of cash at cheap valuations.There have also been positive earnings reports from Alibaba, Baidu (BIDU - Free Report) , JD.com (JD).
Alibaba’s (BABA) P/B (Most Recent Quarter or MRQ) is 1.47X versus the underlying Internet - Commerce industry’s P/B of 2.56X. Price/Cash Flow (Most Recent Fiscal Year or MRFY) is 9.24X versus the industry measure of 14.07X.
JD.com (JD), which also hails from the Internet - Commerce industry, has a P/B of 1.32X and P/CF of 9.40X, which indicates that the stock is trading at a discount to the underlying industry.
Baidu’s (BIDU - Free Report) P/B is 1.03X versus the underlying Internet – Servicesindustry’s P/B of 2.09X. Price/Cash Flow (Most Recent Fiscal Year or MRFY) is 5.89X versus the industry measure of 11.02X.
Any Weaknesses?
Despite the potential for growth, there are inherent weaknesses in the space. The tech sector's reliance on government policies and the ongoing geopolitical landscape pose risks to the stability of investments. Plus, most Chinese tech companies’ earnings growth rates are below their underlying operating industries.