Chinese Technology Stocks Remain Under Pressure

The slump in Chinese technology stocks continues and shows no signs of abating.  The Nasdaq Golden Dragon China Index ETF (PGJ) of U.S.-traded Chinese technology stocks plunged to a 5-1/2 year low Thursday and has slumped -68% from its peak in February of 2021.

Even as the current rout in Chinese technology stocks has reached $1.9 trillion, investors are seeking hedges against further losses in the Hang Seng Technology Index ($HSI), which dropped to a 5-1/2 year low Thursday.  According to Bloomberg data, bearish put options on the benchmark index are trading near a record premium above bullish calls.

Chinese technology stocks are particularly vulnerable in an environment where investors are shunning risk. On Thursday, Chinese stocks listed in the U.S. suffered their biggest decline since 2008 after the U.S. Securities and Exchange Commission identified five Chinese firms that could be subject to delisting if they failed to comply with certain auditing requirements. Also, fears of a fresh crackdown by Chinese regulators have escalated as policymakers proposed more curbs on online games.

Some analysts see the selloff in Chinese technology stocks as excessive.  Primavera Capital Group said some Chinese technology stocks, including Alibaba Group Holding (BABA), are attractive at current valuations and, “at this point, we don’t expect things to get worse from here.  The Chinese authorities and regulators will make sure they wouldn’t go so far as to stifle innovation.” 

Thursday marked the 22nd anniversary of the peak of the dot-com bubble, after which some of the world’s biggest names in technology stocks began a collapse that would take years to recover from.  The Nasdaq Composite Index ($IUXX) (QQQ) hit an all-time high of 5,132.52 on March 10, 2000, before going on to lose 78% of its value and finally bottoming in October 2002. It would take until 2015 before the index recovered its former peak.