Chinese Tech Stocks Outshine US Counterparts

Chinese tech stocks have surged substantially this year, outperforming their American counterparts, but questions remain about the sustainability of this trend and which company stands out as a top contender.

The New Tech Leaders

As Chinese tech stocks soar with a boost from the rising prominence of DeepSeek, analysts are seeking a fitting moniker for the handful of AI-backed tech companies in China that have been outpacing the previous champions, America's "Magnificent 7". Monikers ranging from “Six Little Dragons” to the “Terrific Ten” have drawn parallels with the US-based darlings that beguiled investors in recent years. Companies like Alibaba (e-commerce), Geely and BYD (EV automakers), SMIC (chipmaker), and Xiaomi (phone maker) have formed an undeniable powerhouse, pushing the Hang Seng Tech index up by over 70% so far this year.

Investment firms have been bullish on the prospects of China's tech firms, citing substantial support from the Chinese government to build out the sector. Previously, the administration under President Xi Jinping had been cracking down on the private sector. However, a meeting earlier this month between the Head of State and the owner of tech and e-commerce conglomerate Alibaba signalled that the government is adopting a softer stance towards the tech sector. This was in addition to economic stimulus measures aimed at supporting cutting-edge technologies.

Not All Smooth Sailing

Not everyone is enthusiastic about China's progress in AI. Earlier this week, the US escalated its conflict with the Asian powerhouse by imposing stricter restrictions on the export of chips used for AI development by Nvidia and collaborating with European allies. This caused Chinese tech shares to plummet, primarily driven by Alibaba, as it could face notable challenges considering its large e-commerce revenue from sales to the US. The sell-off suggests traders might be cautious about the emerging Chinese tech sector, but the swift recovery in “buy-the-dip” activity also implies that investors haven't ditched all hopes of further upside potential.

It's worth noting that this is not the first time Chinese tech stocks have experienced a surge followed by a subsequent fading effect. Last September saw significant gains following the promise of economic stimulus, but even after the recent recovery, the tech giants still remain far below their valuations from five years ago. While the press often cites Alibaba as a representative of the tech sector, its competitor, JD.com, might be flying under the radar. Similar to Alibaba's post-earnings report surge, JD.com is expected to report earnings on March 6, with analysts predicting a 20% growth in its bottom line.

JD.COM Flag Signals Potential Upside

Technical analysis suggests that JD.com has left behind a flag pattern, a bullish continuation pattern pointing to $48, $50, and the eventual measured-move projection high of $64 per share. Conversely, a decline below $38 and the lag trough of $32 could signal further losses for the Chinese giant, exposing the highly active support of $27.

Source: SpreadEx / JD.COM

Key Takeaways

While Chinese tech stocks have been beating their American counterparts this year, the sustainability of the trend hangs in the balance as the tech war between China and the US keeps on going. Despite the Chinese government's support and the easing of restrictions, past surges have also been seen fading, and emerging contenders like JD.com gaining attention could be offering alternative opportunities.