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July 20, 2020

China to Create Tech Index

Frank Cabibi

Next week, China plans on debuting their very own technology index tracking the largest tech companies trading in Hong Kong. The new index will be called the Hang Seng TECH Index, according to CNN Business. The article also mentions some stocks that will list on the new index include Alibaba, Tencent, Meituan Dianping and Xiaomi.

Why this is important

The prominent disputes between the US and China probably pushed China into making this decision. As you may know, the US plans to delist Chinese companies from American exchanges, leaving stocks like Alibaba to be traded elsewhere. By making it more difficult to trade Chinese tickers, stocks could suffer. That is why China's response to making their own index could really benefit those tech companies.

Although China is still considered a communist state, it very much resembles a capitalist economy. A stock market is kind of the reason why they aren't entirely communist, even though the government has the power to seize entire companies if they please. Creating this index seems like a power move by China in retaliation to President Trump's revocation of US's Special Relationship with Beijing. The Chinese government placed another security law on Beijing that the US considered as binding Beijing to the government so it was no longer independent and operated as a free entity. In other words, Trump signed an executive order cutting off China's special trade status. China says they will respond with sanctions on US entities as well.

What this could do to the market

Both countries seem to be at war with each other, jeopardizing the foundational trade relationship between the two. China accounts for 13% of US tech consumer market, netting hundreds of billions of dollars a year in revenue. Without them as a partner, both economies will hurt as China moves their stocks to new platforms to trade on. The Hang Seng Tech Index will track the 30 largest tech companies with growing consumer interest.

Shanghai Composite after news of new tech index debut

I personally think that delisting Chinese companies from US exchanges will cause a major sell off in our indices, not for the reason of losing stocks to trade, but because it would signify how tense the relationship between the two powerhouses has become. The US will lose a little under $2 trillion in market cap if Chinese stocks are taken off.

However, foreign investors will still have access to these companies by investing in foreign markets. The US will not only lose over 200 Chinese companies, but individual investors will continue to trade them offshore. Once China releases its new index, foreign investors will just find a way to put their money into either the individual companies or into the index itself, benefiting China's economy.

Featured Pic: https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fs3-ap-northeast-1.amazonaws.com%2Fpsh-ex-ftnikkei-3937bb4%2Fimages%2F9%2F7%2F5%2F1%2F24131579-1-eng-GB%2Fchinaiustechref.jpg?source=nar-cms


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Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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