r/investing
NetEase keeps ripping while Alibaba and Baidu bleed, china tech isn't one trade anymore
China tech correlation is breaking down; internet giants lag while hard tech leads, prompting a shift to rules-based ETFs.
- Hard tech and manufacturing sectors like batteries and AI chips are showing strong momentum and leadership.
- Rules-based baskets and ETFs offer a way to capture the broad China tech rotation without single-stock risk.
- Internet heavyweights are broadly lagging and bleeding, making single-stock selection highly unpredictable.
- Sub-sector rotation within China tech is too fast and opaque, rendering traditional stock analysis ineffective.
I've spent the last couple months trying to build a China tech position and it's been genuinely frustrating. Since roughly March the internet heavyweights (Alibaba, Baidu, JD) have broadly lagged while NetEase keeps grinding higher and Tencent just chops sideways. They're all "China tech" but the correlation between them has completely broken down.
What caught me off guard is where the momentum actually rotated. CATL in batteries, Cambricon in AI chips, Mindray in medical devices. The sector leadership quietly shifted to hard tech and manufacturing, which is the part most popular single ticker China plays don't even cover. If you bought "China tech" through the internet names you basically missed the entire move.
That realization is what pushed me away from trying to pick the right name. When sub sector rotation inside one theme is this fast and this opaque, stock selection stops being analysis and starts being a coin flip. The catalyst that separates a NetEase quarter from a Baidu quarter isn't knowable in advance, at least not by me.
So I've been looking at rules based baskets. Stumbled on CNQQ from Rayliant while researching, about 100 holdings across A shares and HK, 10% single name cap, R&D weighting screen. Haven't bought it. It's under $20M AUM and less than a year old so, grain of salt. China single country and regulatory risk obviously still applies.
The rotation from internet to hard tech is the actual story in China right now and most of the obvious single name approaches are pointed at the wrong half of it.
The Chinese A - shares ETF component of my portfolio has lost around 15% YTD.
Without going into an entire essay: The Chinese internet companies are being weighed down by weak domestic consumption.
Chinese savers, plauged by the property market, are staahing their money instead of investing in the domestic A - shares equity market.
The situation is playing out similarly in the US albeit to a lesser severity: hyperscalers are punished while semis and hardware on the receiving end of the CapEx spending are being rewarded by the market.
The turning point? Fiscal policies to boost Chinese domestic consumption which hasn't yet seen strong support from the Chinese government, save for a glimmer of sign for the PBOC allowing the Yuan to strengthen and attain internationalisation. One evidence that the Chinese government has allowed the gradual strengthening of the Yuan can be seen in the structural decline of the USD against the Yuan - this is something that has been taboo.
If the Chinese government does step in to provide fiscal support thenthere will be a massive inflow of Chinese savings from savings accounts into the A - shares market.
Is cause Iam holding baba I let u guys know when Iam selling