5 Things You Need to Know Before Investing Chinese Technology Stocks

1. Global Technology Market Overview

Technology is changing the world at a very rapid pace, it impacts almost every aspect of our lives. This technological innovation has spurred the revenue growth of many of the larger tech companies listed on global stock markets, growth has been attributed to the rise of merger and acquisition activity.

According the a PWC report, in the past decade, the average annual merger and acquisition turnover has been about US$2.7 trillion.  The year on year revenue growth of the technology sector was up 10.7% with software services sector posting the greatest gain of 35% while Communications declined by 5.5%¹.  This trend has been reflected NASDAQ 100 Technology Sector Index with the index growing strongly in 2017 up from 2860 points to 4000 points².

Reference: 1: Global Technology Scorecard, link. 2: NDXT, link.

In China, the technology sectors of Hong Kong and mainland China are also growing due to higher technology exports and the shift to cheap and advanced domestic technology. Chinese technology companies, such as Tencent Holdings, Alibaba Group Holdings and JD.Com, have started to seek opportunities outside of China by acquiring tech startups and partnering with other tech firms.

2. Chinese Share Market Composition

China has three stock exchanges, Shanghai stock exchange, Shenzhen stock exchange and Hong Kong stock exchange. Companies listed on the Shanghai and Shenzhen stock exchanges are categorized into two different types: A shares and B shares.

In the past, China-A shares are only available to mainland Chinese investors and they also cannot buy and sell B shares. China-B shares are for foreign investment and stocks listed as B shares are trading in foreign currencies (US and Hong Kong dollars).

Companies listed on the Hong Kong stock exchange are called H shares and are regulated by Hong Kong exchange regulations which are quite similar to the UK. In 2014, China Connect was launched. China Connect provides mainland Chinese investors the opportunity to trade Hong Kong shares for the first time and Hong Kong investors to trade China-A shares.

However, not all the stocks are accessible through China Connect, only companies that meet the regulatory requirements can be listed on it.

3. Chinese Technology Sector Overview

The Chinese Technology sector is divided into many subsectors including telecommunications, semiconductors, information technology and software services. Unlike the NASDAQ Tech index, technology sectors in China were down in the year of 2017 by about 10 – 15% even though the Shanghai Composite Index was up about 3%.

Some of the largest technology companies in China choose to list abroad in order to have fairly valued and stable share prices. Companies like Alibaba Group Holdings and JD.Com are listed on the US stock exchanges. Tencent Holdings is listed on the Hong Kong stock exchange.

One key point to note is that China stock markets’ condition doesn’t reflect its economic condition. There are a large portion of retail investors in the market and behavior actions are quite evident.

4. Chinese Tech Stocks’ Historical Performance

China United Network Communications Ltd (600050) is a well-known company in China and is listed on Shanghai stock exchange. Its share price was up over the past five years from 3.12 RMB to 6.34 RMB, gaining more than 100%.

Jilin Sino-Microelectronics Co., Ltd (600360) is a manufacture of electronic component and is listed on Shanghai stock exchange. The share price was up about 110% from 3.81 RMB to 7.98 RMB in the end 2017.

Shenzhen Laibao Hi-Tech Co., Ltd (002106) is a well-known IT company and is listed on Shanghai stock exchange. The share price is flat and did not change too much in the past half-decade.

Alibaba Group Holding Ltd (BABA) was listed in the NYSE on 2014. Listing price was around USD93 and the last traded price was USD187.45, up about 102% in merely 3 years.

JD.Com was listed on the NASDAQ in 2014 as well. Similar to Alibaba, its share price went to USD47.11 from USD20, achieving 135% returns in 3 years.

Tencent Holdings (0700.HK) has an incredible performance history. It listed on the Hong Kong exchange in 2004 at less than HKD1.0 a share. As of February 2018 the stock was trading at HKD 447 giving investors a great return.

5. Popular and famous Chinese Tech Stocks

These stocks include:

• Tencent Holdings Ltd (0700.HK)
• JD.Com Inc (JD)
• Alibaba Group Holding Ltd (BABA)
• China United Network Communications Ltd (600050)
• China Mobile Ltd (NYSE:CHL and 0941.HK)

How to Buy Chinese Stocks in Australia

If you are looking to invest in Chinese stock markets such as China A-Shares, PhillipCapital Australia is one of the very few brokers to provide investors exclusive access to trade cross-boundary into Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE) through Hong Kong Connect.

You will need to open an international trading account to access these stock exchanges.

Find out more on the brokerage fees to buy Chinese stocks.

More guide on how to buy International Stocks.

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