PGJ / Chinese Tech - Oversold?
Anyone close to the Chinese markets who can explain the recent decline in tech stocks over there? I've been looking for a place to put money overseas and the Chinese technology sector ETFs seem appealing given the recent market volatility over there. Large cap tech names like Alibaba, Baidu, Tencent, etc. have cratered in the past year, and at first glance, Invesco's "Golden Dragon" ETF (PGJ) looks like a great way to capitalize on a tech sector rebound in the near future. Would love to hear thoughts from anyone close to the Chinese markets about risk/reward for those stocks.
Me:
I work the HK/Chinese market.
Some high-level stuff:
Most deals in this region are IPOs. M&A is not the mainstream. Maybe some entitled kids from a handful of (elite) boutiques in mainland would disagree but that's the reality.
Now let's talk about the Tech sector on a selective basis.
JD.com:
Disclosure: my bank did IPO for JD Healthcare and JD Logistics.
What's hot right now in China is hard tech, namely chips, robots, advanced manufacturing, hard-core engineering stuff. Other than that it's healthcare. JD is one of them: healthcare, logistics --- the only logistics company competing with SF Express, some people argue --- and of course e-commerce.
From your post I believe you are referring to software or tech-enabled services and platforms such as JD. They got a new CEO as QiangDong Liu stepped down as the CEO. The new CEO is tumbling in Shanghai as people remain locked-down because the CEO fucked up in food delivery, his very first move as the new CEO.
The JD kingdom is really well capitalized and personally I admire Qiangdong as he had no fancy background or family roots when he started. Also, JD is recently berated for its dealings with lay-offs: employees receive emails saying "Congratulations ! You just GRADUATED from JD and it's time for you to move on".
I mean, WTF right.
Its e-comm biz is faring well. Rumor is JD Digital is going for an IPO as well. With all those IPOs you can see it's adored by the Chinese capital market.
In general, JD.com seems to be a good investment. If you get access to the HK stock market, think about it. Not investment advice, although I must tell you that the HK stock market is absolutely horrendous atm.
Tencent:
Tencent is a totally different animal from ALL the other public Chinese tech giants. It is one and only because it makes money from almost just 2 things: (1) Gaming; (2) Investments in companies, many of them related to gaming. In China, tech corp dev is a sought-after yet overhyped field filled with arrogant yet incompetent fucks who think of themselves too much. Tencent's corp dev/strategic investment department is famous for this kind of culture and is of course super selective. The reason being its CEO, Zhipin Liu, was an equity research analyst before he joined Tencent after befriending Pony Ma. Corp Dev at other tech companies usually don't have much clout when it comes to deals because they are basically mid/back office. Other Chinese bankers feel free to correct me here, but I believe I stand correct. Tencent has money-making machines like Arena of Valor, a mobile game, and it runs League of Legends in China. Most people don't even know about Riot Games in China and they don't fucking care. Tencent also has Tencent Music listed in Nasdaq. It has a (majority?) share in Epic Games. You name it. It is essentially a gaming + investment holding company. People might talk about the gaming crackdown in China but do you know how profitable it is? I personally know someone who was a product operations analyst --- you are essentially some customer service rep with more responsibility --- got 100 months of salary as his bonus. He was in the Arena of Valor group under IEG.
Tencent is known for its relatively chiller culture compared to other tech firms, and the best place to become a product manager.
Alibaba:
The Ant Financial blunder is no distant memory. Jack Ma got roasted by you know who after he facetiously believed business trumps politics in China. Known as the company that has the WORST culture, Alibaba promotes something called a "predatory culture": during orientation male workers are asked which female workers they want to sleep with. This is well known.
Facetime is definitely a big thing as well as managing up. People joke about the Alibaba system:
You are a hot startup and Alibaba injected some capital into your company. You ask for their thoughts on something and they say they send a couple of directors or managers to your co. They arrive and propose 100 different plans, all with urgent timelines. When you start working on those initiatives, you find them totally infeasible. Even on a theoretically level they are not solid after scrutiny. You get berated by Alibaba because you are clearly incompetent. Eventually you convinced Alibaba high-ups that those 2 managers sent to your co are absolutely morons and Alibaba called them back to their Hangzhou headquarter, and sent another 2 managers who repeat the same cycle.
Taobao and T-Mall are both cash cows. Oh, and Alipay. Alipay is so common in China that it is a life necessity. Apple and Google probably hope to have this level of dominance in the U.S. yet Americans are still counting their quarters, while Visa and Mastercard want to hire BD managers in China to cut shares from Alipay and WeChat Pay. That is fucking dumb.
I skipped the media segment a bit. but movies/TV shows/reality shows is a big thing in China. Tencent wins here because Youku is long fucking dead and IQIYI has Baidu, a low-paying tech giant only because China does not allow Google to enter its market, as its biggest shareholder.
Tech giants are diversifying their revenue streams.
Oh, there has been some big lay-offs across tech firms.
I've written too much already. Saving Baidu, Meituan, Pinduoduo for another comment.
Here comes Baidu, Meituan, DiDi, and NetEase. I don't really know much about Pinduoduo. What I write here is more anecdote than hardcore research.
Baidu:
What they have done is admirable for sure: search engine is no small feat.
However, Baidu fucking sucks compared to Google. Why the fuck doesn't it show a company's official website when I type "ABC + Official Website" into the search box?
Right now they are doing AI and Autonomous Vehicle stuff. Baidu is actually leading the AV effort now in China. Among BAT, Baidu is known for its tech, Alibaba its operations, and Tencent its product management. That is what people say yet I fail to see how any top engineers go to Baidu since Baidu doesn't pay a lot of money compared to other Chinese big tech.
Their campus is in NE Beijing, not the most ideal place in the world although a lot of tech companies put their campuses there. I think that's fucked up.
I sincerely hope Google comes back to China and kick Baidu's ass. Too bad the government doesn't allow that since search info is kinda national security stuff.
Baidu is not really known for any business segment except the search engine. Its Baidu Map is honestly a load of crap. Imagine you need to go from Bryant Park to Time Square, which is a pretty straightforward path. Now imagine Baidu Map tells you to go Broadway in Downtown NYC and hit 9 & 4/3 to travel to Central Park and then walk from 95th street to ~50th street.
Meituan:
If there is one thing Chinese people cannot live without, its food delivery. Meituan and E le me, which got acquired by Alibaba, are the two essential food delivery apps in China. I don't really wanna talk about market share here because it's essentially a duopoly and the system is really mature. Not that another food delivery platform cannot come to fruition. Delivery riders usually do this count-down of how long they need to go from Point A to Point B because platforms such as Meituan has a very stringent algorithm on WHEN food should be delivered.
An easier way to think about this is: imagine you are in a war and on your map you only saw a river that says "small river. shouldn't take more than 5 minutes". Then you see the Amazon.
Its DianPing segment, one bought a few years ago, is essentially a Chinese Yelp. I bet y'all dig Yelp.
Meituan also offers bike-sharing, after buying Mobike, and grocery delivery. Mobike, thanks to its technology legacy, is a smoother ride compared to DiDi and Alibaba's bikes, which are crap.
DiDi:
Fucking toxic. Culture as well as their business. To change your phone number on your DiDi app you need your previous phone number, but the reason why you want to change your old phone number to a new one is because the old phone number is old phone number. Customer service then tell you you need your old phone number to receive an authentication code. What the FUCK ?
It's funny their American shares dipped like shit. It's also not exactly shocking because it is well-known that the Legend people are watched by the Big Bro. Legend's founder's daughter is DiDi's CEO, so if you tell me the govn't just fucking loves DiDi I don't know if I should call this naivete or not.
DiDi's people are all very entitled. For those who want to pivot to a product manager/product & operations type position, remember, tech culture can be toxic as FUCK. Facetime is a big thing for their BJ HQ and their campus is so far from the city. If you want a life where you make some sweet cash grabbing food delivery 3 times a day living no social life in the middle of nowhere...wait, that sounds like banking?
DiDi is working on its HK IPO. Believe me it's going to be a shit company. Maybe it's not a bad stock since a lot of investors are brain-dead anyway so they prop up the price.
Only reason why it has monopoly in China is Travis Kalanick and the party fucked up. Gaode, a subsidiary of Alibaba, and Meituan, both have their own ride-sharing apps, but those two are platforms where DiDi directly hires drivers. You think the same Uber lawsuits that happened in NYC and London and Germany are gonna happen in China? What the fuck.
NetEase:
This is not a company people talk much about, but it's a solid business. Cloud Village Music just went public in HK and believe me, it's some high-quality music platform. NetEase also designed and runs its own online games that make big money for the co. Overall, NetEase will never be an adrenaline-generating top top tech firm because the company actually wants to do some cool shit, not just raking in cash.
NetEase also feeds people really well, not in terms of pay, but free lunch. I think they offer free dinner as well but I need to check that.
Pinduoduo:
A couple of years ago an employee took a Number 2 in the men's room, in the urinal, because there wasn't enough stall for people. When they say "life is full of shit" you know they are not kidding.
It does pay well. Typical compensation package is 1.5x-2x what other tech nerds are making, for entry-level undergrads. So if you really need that sweet cash, might just adapt to the bathroom situation. It's a personal choice.
Overall:
A lot of people have been saying that SWE and tech is overhyped. I don't want to argue with that. Do believe that despite the layoffs, tech firms still offer way more spots compared to say banks for their respective front office positions, SWEs and bankers. Tech is still a sought out career in China and I think in general it won't be a terrible choice to put some of your money into the Chinese tech firms. Not investment advice.
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