China tech stocks rally as investors bet on decoupling with US

China tech stocks rally as investors bet on decoupling with US

Chinese tech stocks jumped despite Washington’s threat to ban apps including TikTok, as traders instead focused on buying up names that could benefit from a decoupling of the world’s two biggest economies.

Shenzhen’s tech-focused ChiNext index rose 2.6 per cent on Monday while the Star 50 index of start-ups listed on Shanghai’s Star board soared 7.3 per cent. Those indices’ gains were well above the 1.6 per cent rise for the broader CSI 300 of large-cap stocks listed in both cities.

The bullish hue in China’s markets came even as Mike Pompeo, US secretary of state, warned on Sunday that President Donald Trump would take action in the coming days against Chinese apps. Those include ByteDance’s TikTok and Tencent’s WeChat, which the US claims are “feeding data directly to the Chinese Communist party, their national security apparatus”.

US software group Microsoft is in talks to buy the American operations of TikTok, despite Mr Trump’s reservations.

Brokers said Chinese traders were lining up bets on local companies that they believe would enjoy greater support from Beijing if the US and China continued down a path of economic decoupling.

Expectations of beneficial policies and other forms of official backing in response to US pressure had been a “shot in the arm” for Chinese tech stocks, said Louis Tse, managing director of VC Brokerage in Hong Kong.

Strategists added that these hopes had been fuelled by Chinese president Xi Jinping’s recent announcement of a new policy drive known as “dual circulation”. The policy focuses on making domestic consumption China’s economic growth engine as well as securing supply chains in important industries such as technology.

“Markets see the opportunity of the domestic market and that’s why they think even though China-US tensions will remain in the long term . . . the Chinese economy can still manage,” said Ken Cheung, a strategist with Mizuho Bank.

The assumption here is that there’s going to be dislocation in the tech part of the supply chain

Mr Xi’s policy drive is partly to counter vulnerabilities in the export sector due to tariffs imposed on Chinese goods by the Trump administration.

Analysts point out that efforts to reorient the Chinese economy around domestic consumption are also likely to result in lower demand for imported goods. “You must contract imports if you are going to see lower exports and still want to maintain a trade surplus,” said Michael Every, global strategist at Rabobank.

The Star 50 index tracking Shanghai’s tech-oriented Star board, which launched last year, has added more than 60 per cent in 2020 so far. Among its top gainers on Monday were Raytron and Beijing Piesat, makers of electronic circuits and satellite imaging software, respectively. Both closed the day up more than 15 per cent.

“The assumption here is that there’s going to be dislocation in the tech part of the supply chain,” said a director at one Shanghai-based broker, who added that Chinese state media’s use of “dual circulation” had picked up visibly in the last week.

Local companies, he said, “will have funding and the products will have demand because the policy is clearly to limit dependence on foreign companies”.