China’s consumer and technology sector in strong momentum China’s consumer and technology sector in strong momentum China’s consumer and technology sector in strong momentum

China’s consumer and technology sector in strong momentum

Equities 6 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  In today's equity note we highlight our China consumer & technology basket which is now the second best performing theme basket over the past year. Risk sentiment has naturally shifted higher as the Chinese government lifted its Covid restrictions and today the entire sector got another boost as Alibaba revealed a new plan to split into six separate businesses to unlock value. While we remain long-term cautious on Chinese equity returns there is no doubt Chinese consumer and technology stocks look increasingly like a tactical bullish play.


Alibaba jumps on new divestment strategy

China’s largest e-commerce company Alibaba announced today that it will create a new organizational and governance structure splitting the conglomerate into six separate businesses. The overall architecture will be explained by management on a conference call tomorrow. In the brief press statement Alibaba says that the move is done to unlock value and this of course the standard breakup phrase when conglomerates split up, but the move also aligns Alibaba with the government’s anti-competition laws. Since 2021, Alibaba has been at the centre of Chinese technology regulation and selling off assets have on the table ever since. The Chinese government want to prevent Chinese technology companies from exercising cross-subsidisation between business units and locking in consumers in their eco-systems. The natural evolution is that Tencent and Baidu might pursue similar moves in the future.

Alibaba will split the business into six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group. The divestment will undoubtedly simplify the business lines and unlock value, in addition to lower the regulatory threats. The publicly listed company will be the China e-commerce business which is 68% of total group revenue with the remaining units becoming privately owned in the beginning but Alibaba will explore the opportunity to list these units. Alibaba shares rose 13% in Hong Kong trading on the news and the main question is whether this is another catalyst that will make Chinese technology stocks a winning trade this year.

Alibaba share price | Source: Saxo

Are Chinese consumer and technology stocks a must trade in 2023?

Chinese investment assets saw an increased risk premium in the aftermath of the Russian invasion of Ukraine and this risk premium has largely remained in Chinese equities. More government involvement in the economy, technology regulation, a real estate development crisis, and the low growth due to the lockdown did not help either. Our position has been that Chinese equities will not be a long-term winner for investors and this remains our view, but the Chinese reopening is creating short-term opportunities.

Our China consumer & technology basket is up 7.2% over the past year making it the second-best performing theme basket in our universe of 24 theme baskets. Only the defence basket has done better up 14.8%. Luxury stocks which we recently wrote about has been one way foreign investors have expressed a positive view on the Chinese reopening. For those investors that are willing to take additional risks, Chinese consumer & technology stocks listed on Chinese exchanges are an option. The relative and absolute momentum suggests that Chinese consumer and technology stocks could become the winning trade this year. It will likely require that the global economy avoid a recession and that the Chinese government continues to support the private sector.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.