Dip for Chinese Tech Stocks – Do not Forget to Look at the 5 Tech-Related Trends

Summary

• Subsequent to numerous actions taken by economies across the world against Chinese companies, specifically the US with its executive order has led to a fall in the share price of the Chinese companies such as Tencent and Alibaba, falling by 5% each, on 7 August 2020.
• The continuous technological innovation would empower the collaboration of the physical and digital world, while creating a competitive advantage for a few businesses.
• Unsurprisingly, in the wake of the prevailing crisis of coronavirus, Chinese tech firms have grabbed the opportunity posed by the accelerated global technology such as digital payments, cloud computing, AI, and IoT, witnessing robust growth.
• Although Chinese technology companies are witnessing a ban from numerous nations because of threats to their respective national securities, China is shaping the playing field and landscape for the future emerging technologies via release of China Standards 2035.

Following the issuance of executive orders by the US President unveiling ban of US transactions with the owners of two Chinese technology companies, ByteDance (TikTok) and Tencent (WeChat), shares of many Chinese stocks such as Tencent Holdings Ltd (HKG:0700) and Alibaba Group Holding Ltd (NYSE:BABA) plunged by 5% each, on 7 August 2020. This drop in the share price signalled towards the fact that investors were contemplating risks of Trump’s administration putting restrictions on the Chinese tech companies.

Did you read; Trump Cuts US ties with ByteDance and Tencent

Despite the fact that Chinese tech stocks witnessed a fall, tech stocks are still a good bet in the longer term.

Are you ready to explore with us a few of the recent trends concerning technology stocks in China?

Scrutiny of outside world leaders and the banning of apps

Amid tensions blazing between the US and China over the spread of COVID-19, the US administration targeted Huawei as well other Chinese tech companies such as ByteDance (owner of TikTok) and Tencent (owner of WeChat) citing concerns over the accessibility of Americans personal and proprietary data by the Chinese Communist Party, which could further be used for espionage by China.

Furthermore, on 30 June 2020, the US Federal Communications Commission (FCC) officially designated China-based vendors, Huawei and ZTE as a threat to national security and its 5G future as FCC believed that their equipment had noticeable security flaws and could be used for spying on individuals, corporations, and government.

Did you read; US-China clash and TikTok controversy

Furthermore, many economies, such as the UK, Canada, and India, were singing the same tune. They turned the tide against 5G Chinese vendors by excluding them entirely or partially from their core 5G network.

In the wake of the face-off and deadly clashes with China on the India-China border in Ladakh, Indian Government at the end of June 2020, had banned the usage of 59 Chinese apps across the nation as these applications were engaged in activities, which were jeopardising their national security.

Did you read; Are the tides turning against Chinese tech companies?

Chinese Government’s support to Tech

The Chinese Government is expected to release an ambitious 15-year blueprint called as ‘China Standards 2035’ that would lay out its plans to establish the global standards for the emerging/next-generation of technologies such as 5G, IoT, AI, and many more.

This strategic move by China is believed to have wide-ranging implications for technology industries across the globe.

The standards facilitate uniformity and interoperability across the processes of various businesses, improving the efficiency of network rollouts and operational flexibility worldwide.

Emerging trends ushering new opportunities for Chinese tech firms

In the contemporary world, technological trends are driving significant disruption and generating massive opportunities. Numerous technologies are swiftly unfolding into commercial products, and technology-based Chinese companies have an opportunity to rewrite their usual businesses by outpacing and creating new revenue streams riding on the emerging IoT, 5G, advanced analytics, blockchain, and AI-based technologies at an accelerated pace.

Did you read; What Could Be the New Technology Trends Post-COVID-19?

Creating value through merger & acquisitions

With the growing appetite of driving growth by expanding globally, numerous corporations are capturing considerable value and growth through M&A. However, expansion outside the nation’s border is not an easy task.

One of the latest additions to this trend is Microsoft, which is amid acquisition talk with ByteDance, the owner of TikTok.

Microsoft is making a smart bet into this maelstrom (tensions between the US and China on account of COVID-19) and boosting its business, with the acquisition of Chinese short-video making app’s presence in the US, Australia, Canada, and New Zealand.

Notably, the acquisition would be completed after addressing the worries of the US President and acquired after the security review and determining of the economic benefits to the US, including the US Treasury.

Did you Read; The TikTok Talk: Microsoft's Efforts around Pocketing a Big deal

Global technology trends, a boon for Chinese tech companies?

In this turmoil, technology trends such as digital marketing platforms and payments, cloud computing, and video conferencing apps have played a pivotal role in keeping our society and businesses functional.

Moreover, pandemic has created numerous opportunities for the tech sector, which further led to a boom of the industry. Technology companies such as FAANG players encompassing Facebook, Amazon, Apple, Netflix, and Google (Alphabet) rode on the wave of opportunity and experienced swelled customer base and top-line growth.

Furthermore, the FAANG players have played an instrumental role in developing video streaming to online search and social networking to smartphones.

China’s fast-growing and deep-pocketed BAT consists of the following –

• Baidu, running the largest search engine in China;
• Alibaba, a technology conglomerate possessing businesses such as cloud computing, entertainment, food delivery and travel; and
• Tencent, a global multinational conglomerate, specialising in various Internet-related products and services, entertainment and AI worldwide.

These homegrown Chinese equivalents are also riding on the current market trends and witnessing growth in their respective businesses.