CIO Insights: Putting China’s Tech Crackdown in Perspective

29 April 2021
Freddy Lim

Why you should stay invested: China’s economy is rebounding, while protective assets insure your portfolio against any short-term volatility.

Earlier this month, China slapped a record 18.2 billion yuan ($21.8 billion HKD) fine on Alibaba after an investigation ruled the company had abused its dominant market position for several years. Meanwhile, China’s food delivery giant Meituan is being investigated for similar monopolistic practices.

Over in the US, talks of antitrust measures have been ongoing since last year. Just this month, the House of Representatives Judiciary Committee formally approved a report accusing tech giants such as Amazon, Apple, Facebook, and Google of buying or crushing smaller competitors.

Some investors are worried that these developments could set a precedent for similar government crackdowns across the tech industry. And although Big Tech faces a slowdown across the US and EU, China was especially fast in bringing Alibaba in line.

Given the recent headlines on Alibaba, investors might be feeling apprehensive about staying invested in China Tech. Below, we put the recent tech crackdown in perspective.

China’s economy is growing rapidly (even amid the tech crackdown)

China has a 5-year tech timeline that includes the development of semiconductors, servers, cloud computing, and 5G networks. In particular, the country aims to supply 70% of its chip demand domestically by 2025, up from about 50% today. It’s all part of China’s strategy to reduce its reliance on western economies and compete for technological dominance. This long-term view makes the recent antitrust measures a mere blip on the country’s clear trajectory to becoming a global tech superpower. Over the next decade, it’ll continue to invest heavily in robotics, artificial intelligence, and electric vehicles.

On top of that, China remains a strong economy: leading growth indicators have shown that the Chinese and US economies accelerated at a similar pace in the first quarter of 2021.

It’s also on a solid trajectory to growth: Chinese GDP rose at a record 18.3% year-on-year versus economists’ median expectation of 18.5%, industrial production rose 14.1% year-on-year versus the expectation of 18%, and retail sales expanded to 34.2% which beat the expectation of 28%. Lastly, fixed asset investments climbed to 25.6% against the expectation of 26%.

China is leading the global economic recovery from the pandemic

China leading the global economic recovery from the pandemic

Protective assets and long-term investing minimise short-term swings

China has paved the path for technological revolution over the next decade and is leading the global economic recovery from the pandemic. If you maintain this perspective, it becomes much easier to stay invested and not get distracted by the headlines.

But in the short term, you’ll still want to ensure your portfolio is resilient to sudden market fluctuations and generates consistent returns. That’s why it’s important to have protective assets such as Gold built into your portfolio. Gold isn’t always correlated to the stock market’s performance, and in the case of a market downturn, the price of Gold tends to go up substantially.

Investing for the long term will also bring you more consistent returns. You only need to look at the short- and long-term performance of Gold and China Innovation stocks (which includes tech stocks) to see that short-term data isn’t enough to judge an asset’s overall performance.

Gold and China Innovation stocks underperformed in the last month with year-to-date returns of -6.7% and -5.3%, respectively. But, over the last 3 years, they’ve averaged annualised gains of 9.8% and 11.2%.

StashAway’s long-term approach to investing also results in consistent annualised returns over the different time horizons. Given more time in the market, our portfolios can weather short-term fluctuations such as those from China Innovation stocks and Gold in the past month.

Long-term investing generates more consistent annualised returns

StashAway annualised rates of return versus China Innovation stocks and Gold

The bottom line? We can’t predict if or when the next Alibaba-style crackdown will come, but we do know that China’s economy has shown signs of rapid recovery and a pathway to a tech revolution. If you’re investing with StashAway, your portfolios are already built-in with Gold to hedge against short-term volatility, so all you have to do is to stay invested.

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