The Chinese government’s stimulus measures appear to be having a tangible effect on stabilizing the country’s economy. But for future growth, investors may want to align their exposure with a tech focus.
“China’s economy is showing signs of stabilizing but the improvements are decelerating,” Barron’s noted. “That could leave it in an L-shaped recovery—where the economy doesn’t see an upturn—that is unlikely to excite investors.”
What could potentially excite investors is an emphasis on technology, especially with disruptive technologies penetrating various sectors like cloud computing and AI. With Western sanctions on disallowing the purchase of products such as chips, China is becoming increasingly more self-reliant on developing its own proprietary technology to cater to the next wave of AI applications and the like.
Tougher Time for Tech Startups
To help seal its success in the digital battlefield against other nations, China has become more discerning of tech startups. Whether this helps or hinders innovation remains to be seen. Meantime, tech startups that want to get listed on the stock market will have a more difficult time doing so.
“A record number of companies have dropped plans to list on Shanghai’s tech-focused stock market, after regulators raised the bar for initial public offerings in order to pick out domestic champions that can help Beijing’s drive towards technological self-sufficiency,” the Financial Times reported. The report added that companies now must be profitable. It also said they must “explain in hundreds of pages how their technology is on par with, if not better than, industry leaders and whether their business model is sustainable before getting the IPO green light.”
This could spur more discerning innovation. It could also ensure the best of the best is on the stock market. But it could also hinder startups seeking the backing of the Chinese government.
“The Chinese government is basically saying: ‘I am not going to put the country’s muscle behind any company that doesn’t have a guaranteed success’,” said Andrew Collier, managing director of Orient Capital Partners in Hong Kong.
Get Focused China Tech Exposure
Tech will be a persistent theme if investors are looking to get Chinese equities exposure. Consider the KraneShares Hang Seng TECH Index ETF (KTEC). The fund offers exposure to Hong Kong internet stocks, e-commerce companies, fintech firms, and other tech-related companies.
KTEC seeks to track the aforementioned Hang Seng TECH Index. The index includes the 30 technology companies in Hong Kong’s burgeoning tech sector with the highest free-float market capitalization.
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