To say that Chinese tech stocks have been hammered down upon over the past
few days is an understatement. The Chinese crackdown saga became prominent a
few days after Didi’s listing in NYSE, when Chinese government introduced the
cybersecurity review of the ride hailing company and suspended its new user
signup, sending shares tumbling. These resulted in a spillover effect on
Chinese internet stocks, causing the shares to spiral down.

A few days later, the news circulating that China would be forcing tutoring
companies to go non-profit was indeed the last straw that broke the camel’s
back. Tech titans like Alibaba, Tencent, Meituan Dianping and BiliBili, just to
name a few, got terribly hit. To give some perspective, Tencent has lost $170
billion of market value within a month, and Bloomberg calls it “the world’s
worst stock bet”.

Most of the Chinese Internet companies are either listed in NYSE or HKEX.
Even world-renowned investors like Cathie Wood rushed for exit by liquidating
most of her positions in Chinese tech giants.

While all seems doom and gloom for China’s top tech players, I believe
these stocks will rebound at some point in time. Other than the education tech
companies, their fundamentals are still strong, and are trading at an
attractive valuation. From an opportunistic standpoint, it is not in the
interest of CCP to see their tech company fail and lose to their US
counterparts. Historically, the Chinese government follows a socialist market
economy system, whereby the government must ensure a good balance between pure
capitalism and people’s welfare. Hence, one should always consider regulatory
and political risks in analysing any Chinese company as CCP will step in when
needed to ensure that businesses are moving in the direction that aligns with
the long-term interest of the country.

Due to potential regulatory risk, this crackdown will indeed leave a bad
taste in the mouth to retailers and institutional investors; nevertheless, the
current prices are still attractive even after factoring in a generous margin
of safety.

My portfolio is also significantly impacted as well, as I have a
considerable proportion of Chinese stocks in my portfolio. Since sharing is
caring, I will be disclosing the recent changes in my Chinese Tech stocks and
my portfolio value in them.

1.Alibaba (HKSE: 9988) and NYSE: BABA)

I bought shares of Alibaba back in 2018 before the HK listing in 2020. When
the stock rout began, I went ahead to buy the HKSE:9988, and planned to divest
Baba to keep all the Alibaba shares on the Hong Kong Stock Exchange.

Similar to Amazon’s ecommerce, Alibaba may experience a similar slowdown in
its online shopping sector, too, and the silver lining will be in its cloud
computing, which is growing year after year. It only recently became profitable
and will likely play a significant role in growing its top-line and
bottom-line.

NYSE: BABA

Total no. of shares= 33

Average Price= USD 209.345

HKEX: 9988

Total no. of shares= 300

Average Price=HKD 206.031

Total Loss (NYSE: BABA & HKEX: 9988) = SGD 1,499.22

Current Price-to-Sales Ratio= 5

Current Price-to-Earnings Ratio=18

To put things into perspective, its average price-to-sales ratio is 10X.

2.Tencent Holdings (HKSE: 0700)

I started doing dollar cost averaging (DCA) in 2018 with MayBank Kim Eng’s
Monthly Investment Plan (MIP) of $500/month and then went ahead with Stock
Monthly Investment Plan (SMIP) with HSBC HK with HKD 6,000 a month, after a
year when the former stopped its MIP. It was a big payoff this year when
Tencent went up to HKD 700+, and it all changed in a dramatic turn of events.
Currently, I am sitting in a meagre gain of 2.71%.

I am still bullish on Tencent in the long run, as it still holds a strong
moat in the gaming industry not only in China, but in the world. It is a tech
conglomerate which holds a significant stake in many global companies which are
not impacted by the current regulatory risk.

Current Price-to-Sales Ratio= 7

Current Price-to-Earnings Ratio=21.74

Total no. of shares= 342

Average Price=HKD 469.035

Total Gain = SGD 740.25

3.JD.COM (NYSE: JD)

I got to know this company back in 2018 when the company was not profitable
then, but I like its logistics business and believe it’s the Amazon of China. I
did not have a smooth start with this one, as a few months after I bought the
shares, news broke that the CEO was accused of rape and potentially faced a
jail term. As he is the face of the company, the share price plunged 50%, and I
took the courage to average down my position at USD 27.50. Today, this piece of
news is long forgotten, and investors are focusing their attention on
antitrust.

Current Price-to-Sales Ratio = 7

Current Price-to-Earnings Ratio = 14.79

Total no. of shares = 90

Average Price = USD 45.36

Total Gain = SGD 3,102.41

JD.com is still the largest listed retailer in China and it aims to be a
supply chain-based technology and service provider. It owns 900 warehouses,
with fulfilment centres in seven cities, which is more than Amazon’s 175
warehouses. As JD’s sales are still way behind Amazon, it means that there is
plenty of opportunity for growth. When JD’s e-commerce sales grow, it will ramp
up its logistics and warehouse footprint, reducing the delivery and fulfillment
costs and benefitting from its economies of scale. It also owns many businesses
in the health, property, and cloud sectors. Moving forward, I think its lower
tier cities’ users will fuel its future growth.

4.BiliBili (HKSE: 9626 and NYSE: BILI)

It’s known as the Youtube of China, and unlike Youku (formerly termed as
YouTube of China before BiliBili rose to fame), it positioned itself as the
video hosting and streaming platform for the Gen-Z. It started with a focus on
Animation, Comics and Games (ACG), but it’s expanding to cover more content
categories such as pop culture, lifestyle,and educational videos. The growth is
still in its infancy if you consider its accelerating MAU’s numbers at 30% YoY
growth. Similar to Peloton, it has a ‘sticky’ community; and despite having to
go through the hassle to complete a test before becoming an official member to
comment and post, the video platform is still growing at 38% YoY with 80%
retention rate.

I will be shifting all my BiliBili shares to the HK market and continue to average down in the next six months.

NASDAQ: BILI

Total no. of shares= 10

Average Price= USD 105

HKEX: 9626

Total no. of shares= 20

Average Price=HKD 683

Total Loss (NASDAQ: BILI & HKEX: 9626) = SGD 344.27

5.Electric Vehicle (EV) Sector :Ganfeng Lithium (HKEX: 1772), Sunny Optical (HKEX: 2382)
and BYD (HKEX: 1211)

If the tech sector was the detested stepchild of the CCP, the EV sector
would be its darling child. This is evident from Chinese homegrown EV companies
such as XPeng and Nio getting much funding from State-owned Enterprise (SoE) in
the race to be the largest market for EVs.

Back in March 2021, I blogged about having some EV Plays: Ganfeng Lithium,
BYD and Sunny Optical. Check it out here: https://firebyforty.co/2021/03/30/portfolio-updates-march-2021/

I divested Ganfeng Lithium (HKEX: 1211) last week at a price of HKD 163.10, a gain of $2,159.34 or 64.54% in percentage terms. Ganfeng Lithium is the third largest producer of lithium worldwide and
they are the supplier of lithium hydroxide to Tesla. My entry price was HKD
98.91 and I decided to divest it as I didn’t have a strong conviction to hold
it at the current price. I will allocate my proceeds to buy more Alibaba
shares.

I am currently still holding on to Sunny Optical and BYD.

Sunny Optical (HKEX: 2382)

Total no. of shares= 90

Average Price= HKD 183.248

Total Gain = SGD 808.11

BYD (HKEX: 1211)

Total no. of shares = 162

Average Price = HKD 191.67

Total Gain = SGD 1,307

Growth Portfolio

My overall growth portfolio has been pretty muted, as the Chinese tech
stock route has wiped out most of the gains I have made over the month on US
stocks.

Pinterest

The biggest stock loser in my portfolio is Pinterest. The visual search
company recently released earnings on Thursday which reported a drop in monthly
active users (MAU). The sell down signifies that investors are worried that MAU
has peaked. The MAU is indeed disappointing, but it’s worth noting that US MAU
under the age of 25 grew double digits year over year with strong engagements
with Idea Pins. Idea Pins was only launched in May of this year; thus, I will
be watching closely on whether Idea Pins could reverse the dip in MAU.

Secondly, the management has highlighted that the decline in MAU are mainly
users who surf Pinterest on the web. 
These are the users who generate less revenue than Pinners who surf with
mobile apps. The recent drop, in my opinion, is understandable as the Q2 last
year was Covid 19 lockdown season, where many users were stuck at home,
resulting in a spike in user engagements. Therefore, it is like comparing a
previous year’s quarter profit with one-time earnings.

The revenue growth and earnings were impressive, suggesting that its
monetization strategy is working well. The growth opportunity lies in its
global average revenue per user (ARPU), which is a metric I will also be
watching closely. Currently, Pinterest global ARPU grew 89% to $1.32, and when
compared to the US ARPU of $5.08, it signals to me that its monetization
strategy is still in its early days.

Activision Blizzard

I have closed off my position in Activision Blizzard when the video game
giant was sued by employees over gender bias from paying female counterparts
less than male counterparts and creating disparities in career advancement.
Upon further reading into the news, I also found out that women in the company
are being sexually harassed and discriminated against. The management was aware
of these allegations but decided to turn a deaf ear. Discrimination and sexism
is something that I cannot tolerate and it is strongly against my work values,
so I sold all my shares at market order and made a return of 88.88%.

 Dividend Portfolio

Other than selling my HongKong Land shares at $4.72 to settle for a 9.42%
loss, there has been no changes at all.

Total Portfolio value

Stock Portfolio: $514,530

Cash at Hand: $92,508

Total Portfolio Value: $607,037

Portfolio 1 Net Worth: $514,530

Portfolio 2 Net Worth: $196,993

Net Worth (Cash+Equity): $804,031 

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