Wei Mengru (a pseudonym), an engineer of Grade 11 of Tencent, will check Tencent's stock price many times a day. This is a habit she has formed in the past six months. Watching the share price fall from HK $773 to HK $421, bounce back to HK $520 and then fall below HK $450, she got on the roller coaster.

As a result of the employee stock ownership plan, Wei Mengru owns a total of 10, 000 employee shares issued by Tencent. She sees these stocks as her future fund, which she can use to "retire early or start a business". There are not a few employees of large Internet companies like Wei Mengru. "when colleagues get together recently, they can't help talking about stocks," she said. "everyone is very depressed, but it's not all because of paper losses. We suddenly lost sight of Tencent's future. "

Tencent bought back 220000 shares again on Sept. 28, with a purchase capital of about HK $103.7 million. This is one of Tencent's nearly 20 buybacks in September. Tencent buys back about 200000 shares each time. Tencent also made a number of buybacks in August.

In the continuous buyback, Tencent has been out of the August phase of the low. By the close of trading on September 29th, Tencent had rebounded 13% from its low. But there is still a 40 per cent gap from the high in February.

To some extent, the deal with Tencent and BABA reflects the market's confidence in Chinese technology stocks, not only because Tencent and BABA are currently the second and third Chinese companies in market capitalization (note: Taiwan Semiconductor Manufacturing Co Ltd ranks first), but also because of their inseparable relationship with many Chinese stocks-Tencent owns DiDi Global Inc.. Shares of Pinduoduo, Meituan, Bilibili Inc., JD.com, Sea, and other Chinese-listed companies BABA owns the shares of ZTO Express, Alibaba Health Information Technology, BEST INC and other companies.

As China's long-term outstanding asset, the return of China Technology stocks is better than that of the A-share Index and Hang Seng Index over the same period. But this year, investors' former palm treasure has become a headache, and the interconnection has been jokingly called "mutual pity between beggars and beggars". There are currently 283 Chinese companies listed in the United States, according to Wind. By the close of trading on Sept. 29, 45% of companies had fallen by more than 20% for the year, with only 24% of companies with positive returns.

Over the same period, Jinrui China Internet ETF (KraneShares CSI China Internet ETF: KWEB), which tracks the performance of listed companies in China's Internet-related industries, fell 34%, compared with a 14% rise on Nasdaq.

At the same time, overseas funds on the in-depth adjustment of the Internet is also accelerating. Over the past three months, net inflows into KWEB have exceeded $4 billion, doubling the amount of money under management. In particular, net inflows reached $1.09 billion in the week from August 23 to 29.

1. "Deep discount" attracts bottom investors

Investors who buy Zhonggao technology stocks at this time have good reason: stocks already look cheap-even after the recent rebound. As of September 29, Jinrui China Internet ETF (KWEB) was trading at 18 times earnings, while Invesco QQQ Trust, which tracks the performance of Nasdaq Internet companies, was trading at 46 times earnings.

Net inflows to KWEB reached $4.26 billion in the three months from June 28 to September 28, according to etfdb.com. At present, KWEB's latest net worth is close to $6.8 billion, surpassing Blackrock's more extensive iShares MSCI China ETF to become the largest Chinese ETF in the United States.

Investors from Europe and the UK are particularly optimistic about the "deep discount" of Chinese technology stocks after regulation, according to an article on Jinrui's website.

Some money has also poured into Hong Kong through ETF and interconnection mechanisms. As of Sept. 28, Huaxia Hang Seng Internet Technology Industry ETF share is 18.1 billion. Since July, the fund share of Yi Fangda's general Internet ETF has soared from 10.25 billion to 18.15 billion, an increase of 77%. If calculated from 2.68 billion at the beginning of the year, the fund share has increased more than fivefold.

In his weekly market commentary released on September 27, Blackrock argued for the first time that the government had begun to deregulate as China's growth slowed, but Blackrock still believed that regulators would maintain a hawkish policy stance in the medium term. to ensure the quality of growth. At the same time, "the speed and intensity of regulation of some private sectors may slow down. "on China's rights and interests market, Blackrock tactically changed from being neutral to being cautious.

Blackrock has submitted a prospectus for MSCI's China Multi-Industry Technology ETF (iShares MSCI China Multisector Tech ETF), which will passively track an index of Chinese technology stocks and technology-related stocks, according to filings on the US Securities Regulatory Commission's website.

2. Cautious investors wait for the signal at the bottom of regulatory policy.

But in the view of another cautious investor, being cheap is not necessarily a good deal.

Shares of Chinese Internet platform companies trade at about 20 times tracked earnings per share, compared with about 30 times between 2019 and 2020, but "the cheaper may be cheaper," Thomas Gatley of Gavekal Research told clients in a note on Sept. 13. "the business environment is changing and it is not clear how much management will allocate the company's profits to charitable donations or how the new data security legislation will be implemented," he said. these may pose a "major threat" to the business model of Internet platforms.

A media relations official of a leading Internet securities firm in China also told the Chinese edition of Barron Weekly that the tone of Chinese-listed stocks had changed. "in the past, Chinese-listed stocks asked us to do some PR exposure, like to emphasize how high their market share and how fast their growth rate. Now, they are more willing to talk about their social contributions and how much charity they have done from the perspective of ESG. "

Some market analysts believe that the regulatory action against Internet platform giants is not over yet, and it may take another six months to a year or so to see the bottom of the policy.

Key signs of ending the current technology regulatory cycle may include: approval of initial public offerings by large fintech companies after full compliance with regulatory requirements, clear signals to resolve employee welfare issues in platform companies, or speeches by heavyweight policy makers. Morgan Stanley pointed out in a report.

This uncertainty has led some investors to shy away from Chinese stocks. "at present, none of our clients have offered to increase their positions in Chinese-listed stocks," a senior vice president of a Swiss wealth management agency told the Chinese edition of Barron Weekly. "because the systemic risk is too high. At the present node, I will not recommend any US-listed stocks to my clients. If it has to be configured, I would at most recommend emerging market ETF with positions in US-listed stocks, spread out. "

Zhang Yidong, chief global strategist at Societe Generale Securities, also said at an online meeting on August 29 that Chinese stocks may have a phased rebound, but "the persistence of the rebound will not be very strong. Our outlook for industry policy risks and cross-border regulatory risks in this sector is still pessimistic. "

3. "keep China in the portfolio"

There are also some investors who are long-term optimistic about China, although they may not have taken action, they are still optimistic about the huge potential of the Chinese market and the long-term prospects of Chinese companies. They argue that China, a country that is highly linked to global supply chains and financial markets, is too big to ignore, regardless of whether the prospects are good or bad.

Deepak Puri, chief investment officer for the Americas of Deutsche Wealth Management, said that in terms of short-term operations, "it is too late to sell and too early to buy", while in the long run, although China's growth prospects have declined slightly, for investors who use investment returns as their main motivation, political and ideological views should be put aside and "keep China in the portfolio".

Cathie Wood of Ark Capital rebuilt its position to buy China General Technology stocks after making a move similar to the clearance of Chinese-listed stocks in July. She said at a video conference in September that she did not plan to give up the Chinese market because the country is so focused on innovation and is "naturally entrepreneurial."

Justin Leverenz, an investment manager at Invesco emerging Markets Fund (Invesco Developing Markets Fund Class A:ODMAX), cut his position in BABA ahead of regulatory policies in Beijing. But he believes that many investors do not realize that China's regulatory measures are good for the cash flow of Internet companies.

Although the growth rate of some companies will slow down and valuations will be reweighed, Internet companies will pay more attention to profitability and cash flow will increase significantly. Leverenz told Barron Weekly.

Xia Chun, chief economist of Noah Holdings Group, also told Barron Weekly that excellent Chinese companies will continue to be favored by foreign investors: "if China's GDP continues to grow by more than 5% for a long time, US pensions or state government funds are still willing to hold high-quality assets in China, whether from the A-share market or the Hong Kong stock market. "