Fathom Consulting
September 5, 2022

Chart of the Week: Is the revival in China tech stocks set to continue?

by Fathom Consulting.

Chinese technology stocks have outperformed the broader Chinese domestic market (CSI 300) by 12% and their US peers (NASDAQ) by a significant 30% since a trough in late April. This stronger performance, particularly over the early summer period, was motivated by suggestions at a meeting of the Chinese Politburo in late April that the more oppressive aspects of Beijing’s regulatory oversight of tech companies might be over, with ongoing stimulus for China’s struggling economy also a factor. Rising US interest rates have also contributed toward the underperformance of the US tech sector, with ongoing COVID-related shutdowns in China rendering Chinese tech relatively attractive compared to some other sectors of the Chinese economy.

Geopolitical considerations could provide additional tailwinds for Chinese tech stocks, as technology is increasingly seen by the ruling Chinese Communist Party as a strategic means to maintain social cohesion, control over information and military advantage; for example, references to technology featured heavily in a transcript of a leaked (and unverified) meeting of the Guangdong Provincial Military Region, rehearsing how to mobilise in preparation for war. As a recent update to Fathom’s Global Outlook, Summer 2022[1]has highlighted, the slowdown in global economic activity is likely to provide a bigger story and surprise than inflation, resulting in a lower path for interest rates by year end than is currently priced in by investors. Technology stocks globally would be well positioned to take advantage of such a development

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[1]. Charts from Fathom’s Global Outlook, Autumn 2022 will be available for all Refinitiv users via Chartbook from October. For a breakdown of key topics we will be discussing this quarter, please see here: https://www.fathom-consulting.com/wp-content/uploads/2022/08/Global-Outlook-Autumn-2022-web.pdf

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