Are Chinese Tech Stocks Set For Fizzle?

A trade war tariff reprieve does not a sustainable rally make, at least not for Chinese tech stocks. However, the news Thursday (Aug. 15) was centered on earnings at Alibaba, where shares were up low single-digit percentages after results beat estimates.

And it’s fair to say there were some positive takeaways from the company’s commentary that the Chinese consumer is still spending. Witness the fact that as Alibaba reported, core commerce sales were up 44 percent year on year. Management pointed toward the continued emergence of a burgeoning middle class, beyond the bastions of the traditional cities.

But eventually, pretty much everyone gets stymied the longer a broad economic slowdown goes on. The latest economic data are not encouraging.

Earlier this month, stats showed that the PPI was off 30 basis points in July, after a flat June reading. The fact that there is lower inflation means, eventually, other data points start to weaken (like wages, which of course means purchasing power softens, too). Corporate profits were down 3 percent year over year. The trade data show a sharp contraction in imports amid a lengthening trade war. And of course, the recent devaluation, meant to spur at least some trade activity, may not do much.

To take a bigger picture, the iShares MSCI China ETF is up year to date roughly 4 percent of this writing. Two tech juggernauts, Alibaba and Tencent (where the macro environment has hit advertising revenues according to its latest results), comprise roughly 29 percent of that ETF, so it’s safe to say that as those companies go, so too do Chinese tech stocks in general. It’s a far cry from the double-digit percentages that had been seen before the trade saber rattling began anew, and in earnest, in recent months.

There’s another wrinkle here, too, and it’s tied to regulation — in both China and the U.S., and where the fizzle might be decidedly on the U.S. side of tech stocks, at least when it comes to Asian firms. Earlier in the summer, several U.S. lawmakers debuted legislation that would place U.S.-listed companies under greater regulatory oversight.

Thus a cross border war may be brewing in another way, as U.S.-listed firms like Alibaba are reportedly mulling listing a bit closer to home in Hong Kong. Such a move would be akin to some pride of place. Hong Kong, for its part, as reported by CNBC, has loosened at least some listing parameters, likely to encourage new issuance of shares from companies coming to market, all of which would reduce the opportunities and exposure for U.S. investors.

Sizzle

Retail Sales, Primed: Amazon Prime Day boosted retail sales in July, according to Bank of America Merrill Lynch. Retail sales, excluding autos, are estimated by the bank to have gained 60 basis points, half of that driven by Amazon Prime.

Challenger Banks: Record funds were raised for challenger banks as they take on traditional FIs, with $2 billion raised cumulatively and $100 million raised in the second quarter alone, per data from CB Insights.

Instant Funds: Venmo added another option for instant money transfer into bank accounts, this time without debit cards. As reported, Venmo has 40 million active users as of the first quarter of this year.

Fizzle

Biometrics: Turns out biometrics are not bulletproof when it comes to fraud. In the U.K., a large breach, including 1 million fingerprints, facial recognition and passwords, hit Suprema, which offers the biometrics-based Biostar 2 lock system.

Big Tech Breakups: As regulators said this week, big tech breakups are still on the table. The Federal Trade Commission is looking into whether  Facebook and others are harming competition. FTC Chairman Joe Simons said if breakups are needed, “you do it.”

China Growth: The trade war takes twists and turns, and the impact is being felt in China. As per the latest readings, industrial productivity is at its slowest pace since 2009. Businesses are showing weakening confidence as manufacturers reduce spending. Economic growth in the second quarter is at its lowest point — 6.2 percent — in nearly three decades.