China tech shares – what’s next?

Brief overview

Recent releases of earnings results for several Chinese big tech companies seem to draw mixed reactions in share prices, with some companies such as Kuaishou and JD.com showing that they may be better positioned to weather the uncertainties from regulatory crackdown and macroeconomic conditions, compared to others such as Alibaba.

That said, the overall sector remains largely weighed as the CSOP Hang Seng Tech Index ETF fell by 7.5% over the past two weeks, with slowing revenue growth and declining margins as key concerns for outlook ahead.

What can we expect

A look at the overall net turnover of the southbound Hong Kong Stock Connect on a 20-day moving average suggests that while there has been some pickup of confidence back in early October, bullish sentiments seem to be hitting a roadblock for now. That comes after the recent corporate earnings for big tech firms revealed the impact of regulatory reforms and dull macroeconomic outlook, which kept some market participants shunning.

The macroeconomic landscape adds to the bearish moves amid the paring of some risks from growth names, with rising yields being a key concern when it comes to debt cost and valuation. Since then, the overall Southbound net turnover has logged an outflow (below the zero-mark) on a 20-day average basis. With that, one may potentially await further turnaround in this regard to indicate a shift in sentiments.

A look at the fund flow data for the KraneShares CSI China Internet ETF (KWEB) revealed that recent consolidation since end-July was met with intermittent ‘sharp spikes’ of inflows, an indication that some foreign investors may be buying the dip.

That may seem to put the $45.47 level on watch as potential support, where it previously marked the largest inflow of more than $500 million in a single day. Any breakdown of that level may then point towards a further shift in sentiments to the downside.

Technical analysis – Alibaba

The ongoing downtrend for Alibaba’s share price has been reflected in the series of lower highs and lower lows since October last year, largely trading within a descending channel pattern. While the relative strength index (RSI) at oversold region may increase the chances of a near-term rebound, previous rebounds at oversold levels are relatively short-lived, with lack of catalysts to fuel longer-term shift in sentiments to the upside.

Near-term support may be at $128.60, where prices were supported on previous two occasions in 2018. This is followed by the $110.00 level, where the bottom trendline of the descending channel pattern may come into play.

Technical analysis – Tencent

Tencent’s share price may seem to trade within a symmetrical triangle pattern, but the lower highs on moving average convergence divergence (MACD) accompanying its recent tops suggest that upside momentum are still waning for now.

A key level to watch may be the psychological HKD500 level, where a previous support level is serving as the resistance to overcome. A breakdown of the bottom trendline of the triangle may potentially put the HKD445 level on watch next.