Finding Investment Opportunities Amid Short-Term Headwinds in China Tech | Page 20

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Finding investment opportunities amid short-term headwinds

Shorter term headwinds prove challenging but China internet stocks present investment opportunities
By Ken Shih and Redmond Wong

There have been two recent headwinds that sent China tech stocks tumbling after its early surge in late March .

1 . Policy wise , Beijing ’ s Cyberspace Administration of China offered a strict outline of who would be able to offer artificial intelligence ( AI ) services in China and further rules were established in terms of controls such as the need for firms to submit security assessments before they launch their AI offerings to the public .
2 . About 40 companies listed in China , many related to AI , also announced last week their shareholders or senior manager plan to offload their shares .
This sent key tech names such as Alibaba , Tencent and Baidu down 8.7 %, 5.2 % and 5.6 % in a short span of a week .
While the focus has been understandably on the upside from AI , we believe there may other positive factors for China tech that investors may be overlooking . The clearer shorter term upside is for Chinese tech giants that have more consumer and eCommerce exposure . We offer three reasons why consumer and eCommerce tech platforms may see further uplift ahead :
1 . China ' s economy surges past expectations in Q1
China ' s economy recorded a robust 4.5 % YoY growth in Q1 2023 , outpacing both the Bloomberg consensus forecast of 4 % and the previous quarter ' s 2.9 % ( Figure 1 ). This impressive growth was largely driven by a remarkable rebound in the tertiary sector , predominantly services , which registered a 5.4 % year-on-year ( YoY ) growth in Q1 , a significant jump from the 2.3 % YoY growth in Q4 2022 .
Amid the monthly activity data , a standout feature was the rapid acceleration of retail sales , a beacon of hope for the beleaguered economy . In March , retail sales surged 10.6 % YoY .
Furthermore , online retail sales have grown strongly despite easing mobility restrictions . China ' s online retail sales of goods and services managed to surge , registering a remarkable 10.9 % growth in March , outpacing the overall