In China, old school is new again and new school may be passé.
The Wall Street Journal reported earlier this week that the Chinese stock market is finding succor, and presumably, bargains in the likes of the smokestack economy companies.
Think steel, manufacturing, cement commodities and, well, the guts and decidedly non-glorious infrastructure plays that make tangible things. Not the companies that make services and speed payments and data and mine social media for marketing nuggets.
As The Journal noted, the group of bricks-and-mortar plays (pun intended here) have logged gains as of this writing of more than 5 or 6 percent (depending on which group you are following), versus roughly 4 percent for the broader markets, as measured over the past roughly three-and-a-half months. The touted tech heavy startup index, known as the ChiNext Price Index, is basically flat.
The implication here is that there may be some type of sector rotation underway. It should also be noted that the Chinese government, in an effort to help shore up some languishing economics, is in effect throwing money at major building and infrastructure projects (sound familiar?) which also means that investor money follows where it perceives there to be an unlimited backstop against losses.
By focusing on real estate, and other real projects (investment in this manner is up double digits in the latest quarter from a year ago), the Chinese government may be diverting attention and funding away from the tech sector that might otherwise be there for the taking. Technology has some ways to go — and until it is truly widespread in China – and not just Internet companies, but services like payments and of course banking. It’s been well-documented that the rural areas of China represent, clearly, investment opportunities that are about as greenfield as can be. Even if the government has its attention bifurcated between “old vs. new” economy initiatives, there remains some hope for international partnerships.
Just earlier this week, a number of executives from high-tech juggernauts including Dell and Foxconn met with China’s premier in a discussion centered around building out Big Data in the country’s poorer regions. The discussion may just be talk, as it’s also been clear that western companies are coming under ever greater scrutiny over business practices. Apple has of course been a poster child here. But more will join that tech behemoth. In the meantime, look for tech stocks to continue to languish as money chases money in China.
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