Summary
- Growing hopes that China will reopen its economy have ignited a spectacular rebound in Chinese technology stocks, but we believe that hopes for a reopening are premature.
- Instead, we see imminent risks of a failure in the market rebound, potentially resulting in sharp losses for investors caught in this speculative fervor.
- Crucially, we do not see any scope for a meaningful reopening of China's economy unless there is an effective vaccination program in place.
- Even if the tech crackdown eases going forward, there is no telling which industry will be next in line given the unpredictable nature of policy decision-making within the CPC.
- Given that the downside risks far outweigh the prospects of a strong economic rebound in China, we initiate our coverage of KWEB with a "Sell" rating.
For further details see:
China Reopening Hopes Premature, Speculative Tech Rally Likely To Fail