In January, Chinese tech stocks came to life following the news that Hangzhou-based artificial intelligence (AI) company DeepSeek can process data for AI more efficiently and at a lower cost than US companies. The Hang Seng Tech Index has been a major beneficiary, up 34% year-to-date as of March 10. At one point, this index had gained 38% since Jan 2.
Local retail investors can trade the Hang Seng Tech Index and access Chinese stocks through exchange-traded funds (ETFs) and Singapore depository receipts. In addition, several China mainland-owned and mainland-based stocks are listed on the Singapore Exchange (SGX). Some popular names are Yangzijiang Shipbuilding, Yangzijiang Financial, China Aviation Oil, Yanlord Land, China Everbright Water , Sasseur REIT and Tianjin Pharmaceutical Da Ren Tang.
The outperformer since the start of the year is the Lion-OCBC Securities HSTECH ETF (HSTECH), which is up 27% (as of March 10) compared to the Straits Times Index (STI), up a mere 3% during the same time frame. HSTECH is the most liquid ETF and China tech proxy on the SGX.
Other pure China ETFs are the United SSE 50 China ETF (SSE 50 ETF), the Lion-OCBC Securities China Leaders ETF (China Leaders) and the Xtrackers MSCI China ETF (MSCI China ETF).
The HSTECH ETF is likely to be the most attuned to the Two Sessions of the National People’s Congress (NPC) and its focus on tech. Its top 10 holdings by weightage are Xiaomi, Alibaba Group Holdings, SMIC, Tencent Holdings, JD.com, Meituan, Li Auto, Kweishou Technology, Xpeng and NetEase. Alibaba has exposure to AI, and Li Auto and Xpeng have exposure to electric vehicle (EV).
UOB Asset Management’s SSE 50 ETF is more broad-based and tracks the Shanghai Stock Exchange 50 Index, with China’s largest banks within its top 10 components. Interestingly, the top 10 holdings of this index by weightage do not include any tech stocks. They are Ping An Insurance, Kweichou Moutai, China Merchants Bank, Industrial Bank Corp, China Minsheng Banking Corp, Inner Mongolia Yili Industrial Group, Bank of Communications, Agricultural Bank of China, Shanghai Pudong Bank and ICBC.
See also: Big Chinese share sales are luring back long-term investors
The top 10 components of the Xtrackers’ MSCI China Ucits ETF track the performance of the MSCI China Index and was the second-best performer after HSTECH ETF. This is because the MSCI China Index is also tech-heavy. The MSCI China Index’s top 10 component stocks are Tencent, Alibaba, Meituan, Xiaomi, China Construction Bank, PDD Holdings, JD.com, BYD, ICBC and Bank of China.
Elsewhere, the UOBAM PingAn Chinext ETF attempts to replicate the movement of the top 100 stocks of the Chinext Index. The top five stocks in the Chinext Index are Contemporary Amperex Technology Co (CATL), EastMoney, Mindray, Innovance and Sungrow Power Supply.
Other pure Chinese-focused ETFs include the CSOP Huatai-PineBridge SSE Dividend Index ETF, which replicates the performance of the SSE Dividend Index, and the NikkoAM-ICBC Singapore China Bond ETF.
See also: Consumed by consumption
According to the fund managers of Tantallon Asia Impact Fund, the continued market rotation into Chinese risk assets after the release of DeepSeek and President Xi Jinping’s make-peace session with China’s technology and e-commerce elite reflects a perception that aggressive fiscal and monetary stimulus might be Xi’s only real “buffer” in the event of a protracted tariff war, the “worst” for the Chinese property sector might finally be in the rearview mirror with Beijing committing to recapitalising the babbling system, and Chinese equity valuations are compelling.
Real estate remains a challenge
According to Bloomberg, consumer inflation in the year-to-date has turned negative through January-February for the first time since 2021. Bloomberg quotes Dan Wang, China director at Eurasia Group, as saying: “Overcapacity, plus a relatively conservative monetary stance, would actually prolong this deflation pressure rather than alleviating it.”
As a case in point, stresses in the property market caused Yanlord Land Group to announce a net loss of RMB3.42 billion ($630 million) in FY2024. The loss was mainly due to a write-down of completed properties for sale and properties under development for sale, net impairment losses on financial assets, and a fair value loss on investment properties amounting to about RMB5.7 billion (before tax and non-controlling interests).
“China’s real estate sector saw year-on-year declines across all three key indicators: property investment, sales value and transaction volume, with sales value recording the steepest decline at approximately 17%. Throughout 2024, the Chinese government introduced a series of supportive and stimulus policies to revitalise the market, with the explicit objective to “halt the decline and restore stability”, demonstrating an unprecedented level of political will. The combined effect of these policies has begun to yield results, with the real estate market showing signs of improvement in the fourth quarter of 2024,” Zhong Sheng Jian, Yanlord’s chairman and CEO, said in a prepared statement.
Oversupply in business parks and warehouses plagues S-REITs such as CapitaLand China Trust (CLCT). During a results briefing on Feb 6, Gerry Chan, CEO of CLCT’s manager, acknowledged that the “market for business parks and logistics remained challenging. The business park sector faced weaker demand and more supply”.
This is evidenced by CLCT’s business park occupancy of 87.6% as at Dec 31, 2024, compared to 91% in the previous year, Chan said. For example, the occupancy of Ascendas Innovation Towers in Xian fell to 71.8% as at end-Dec 31, 2024, compared to 90.1% a year earlier. Chan says this was due to the downsizing of a major tenant.
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The properties in Hangzhou, Singapore-Hangzhou Science and Technology Park Phases 1 and II also faced challenges. As of December, the park’s Phase I occupancy was 74.6%, albeit higher y-o-y. Phase II’s occupancy fell to 84.4% from 89% a year ago.
Chan says CLCT’s Hangzhou occupancies are better than the market’s but blames excess supply in the eastern city, which is home to Alibaba, for the low occupancies.
On the other hand, CLCT’s logistics assets’ occupancies have improved to 97.6% from 82% a year ago because of a master lease for its Shanghai logistics park. However, rental reversions fell sharply, and analysts have suggested that rents for new leases are being transacted at double-digit declines compared to expiring rents.
“Logistics will still be a tough market in the next few years,” Chan says, adding that he is exploring a reconstitution of the portfolio where possible. All in, CLCT’s distribution per unit (DPU) declined by 16.2% y-o-y to 5.65 cents.
There is not much in terms of DPU yield between CLCT and Sasseur REIT, as both are trading at around 8.7% to 8.8%, but Sasseur REIT’s unit price has held up a lot better than CLCT’s. Since the start of the year, Sasseur REIT’s share price is up by 1.47%, compared to CLCT’s, which is 10% lower. Its distribution per unit (DPU) for FY2024 was 6.082 cents, down 2.7% y-o-y. Hence, its operations, which depend on income from outlet malls, are more stable. As at end-2024, Sasseur REIT’s occupancy was at 98.9%, or almost full.
“It’s been a very challenging year for the retail sector in China. It’s not a rosy picture. But we continue to show a clear defensive price value proposition for consumers and we continue to acquire new VIP members, which reflects how people view the long-term fundamental value of outlets for their day-to-day lifestyle spending,” says Cecilia Tan, CEO of Sasseur REIT’s manager.
Based on the REIT’s data, growth should continue, albeit moderately. “Historically, outlets were the place where brands threw excess inventory. Now, consumers look for not just price points but the overall, holistic experience, including programs for VIP customers, thematic promotions, and making sure the aircon functions well,” Tan describes.
Singapore depository receipts anyone?
Singapore Depository Receipts (SDR) have yet to gain popularity. This is partly because traders and investors often buy and sell US and Hong Kong stocks on Tiger Brokers or Moomoo and other trading platforms.
The main advantage of SDRs is that on SGX, these stocks are traded in Singapore dollars with dividends, if any, paid in Singapore dollars.
An SDR represents a beneficial interest in an underlying security listed on an overseas exchange. The SDR issuer does not have a formal agreement with the underlying company.
Each SDR is represented by a specific number of securities listed on an overseas exchange, deposited with a custodian appointed by the SDR issuer and held on trust for SDR holders. SDR holders can convert between the SDR and underlying security via an issuance and cancellation request through the SDR issuer.
To date, the SDRs of eight Hong Kong stocks are listed on SGX: Tencent, BYD, Alibaba, HSBC, Meituan, Xiaomi, Ping An Insurance and Bank of China.
As though by clockwork, just in time for the end of the NPC’s Two Sessions, the US markets have taken a tumble amid tariff volatility and recession fears. Citigroup says that Chinese shares look attractive even after their recent rally, supported both by cheap valuations and the Chinese government’s pivot to support the tech sector.
