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Chinese takeaways

January 7, 2023

Above is a chart of my go-to Chinese ETF, KWEB, KraneShares China Internet, which has a good looking chart, which includes a rising Coppock indicator. Below are the top 10 holdings which include two interesting new names, Kuiashou Technology, quoted in Hong Kong and Full Truck Alliance, listed on the New York Stock Exchange. KWEB is a simple way to gain exposure to what is happening to exciting, fast-growing Chinese Internet shares and the chart makes a strong case for buying right now..

Full Truck Alliance offers high tech exposure to the growth in movement of goods in China

I have been having a look at Full Truck Alliance, which looks like an exciting business.

Full Truck Alliance, or FTA, is the world’s largest digital freight platform by gross transaction value, or GTV, in 2021, according to the CIC Report. We have transformed China’s road transportation industry by pioneering a digital, standardized and smart logistics infrastructure across the value chain.

Our platform connects shippers with truckers to facilitate shipments across distance ranges, cargo weights and types. We have built a vibrant ecosystem of millions of shippers and truckers. In the fourth quarter of 2021, an average number of approximately 1.57m shippers posted shipping orders on our platform each month. In 2021, we facilitated 128.3m fulfilled orders with GTV of RMB262.3bn (US$41.2bn), and over 3.5m truckers fulfilled shipping orders on our platform. Approximately 25pc of all China’s heavy-duty and medium-duty truckers fulfilled shipping orders on our platform in 2021, according to the CIC Report

Web site

The chart looks promising. A breakout from the pattern could take these shares to new all-time peaks. The group reported strong growth in the last reported quarter.

Our total net revenues in the third quarter were RMB 1.8m, representing an increase of 45.7pc year over year, primarily attributable to an increase in revenues from freight matching services. Revenues from freight matching services, including service fees from freight mortgage models, membership fees from listing models, and commission from online transaction services were RMB 1.5bn in the third quarter, representing an increase of 39.5pc year over year, primarily attributable to an increase in revenue from our freight brokerage services, as well as rapid growth in transaction commissions. Revenues from freight brokerage service in the third quarter were 904.1m, representing an increase of 31.2pc year over year, primarily driven by continued growth in transaction volume as a result of improved user penetration.

Q3 2022, 23 November 2022

This is what one analyst had to say.

A product of the Yunmanman/Huochebang merger in 2017, Full Truck Alliance (NYSE:YMM) is the leading China-based digital freight platform, with operations spanning freight listing, freight brokerage, online transaction, and value-added services to shippers and truckers. Despite the massive addressable market opportunities at hand, the stock has underperformed YTD on regulatory concerns (the suspension of new user acquisition) and a COVID-driven freight demand slowdown. Yet, the more accommodative policy shift post-June and the recent quarterly rebound show the fundamentals remain intact, with growth and margins outperforming despite the lockdowns. At ~8x fwd EBITDA, the stock screens favorably relative to growth expectations, presenting a compelling entry point.

Seeking Alpha, 5 December 2022

Kuiashou sees huge potential for short video e-commerce

The other newcomer is Kuaishou Technology, which is a local media business.

Kuaishou is a leading content community and social platform with its mission to be the most customer-obsessed company in the world. Kuaishou has relentlessly been focusing on serving its customers and creating value for them through the continual innovation and optimization of its products and services. At Kuaishou, any user can chronicle and share their life experiences through short videos and live streams and showcase their talents. Working closely with content creators and businesses together, Kuaishou provides product and service offerings that address various user needs that arise naturally, including entertainment, online marketing services, e-commerce, online games, online knowledge-sharing, and more. 

Kuiashou Technology web site

The group is growing strongly.

In the third quarter of 2022, our domestic DAUs [daily active users] increased 13.4pc year-over-year to a record high of RMB 363m. At the same time, operating profits for our domestic businesses in the third quarter remained positive for the second consecutive quarter, increasing by nearly three times compared with the second quarter. Our Group’s adjusted EBITDA also continued to improve in the third quarter of 2022.

Q3 2022, 22 November 2022

The CEO and co-founder,38 year old Cheng Yixiao, sees huge potential for growth.

We believe that although the e-commerce industry has entered a mid- to late-stage of intense competition compared with the traditional shelf-based e-commerce, content-driven live-streaming and short video e-commerce still holds immense potential that can be tapped into through innovation.

Q3 2022, 22 November 2022

There are numerous statistics that testify to the scale and growth of the business.

Our original short video content ecosystem is the foundation of our platform. As of September 30, 2022, we had more than two million creators who had more than 10,000 followers each and our creators had accumulated a total of nearly 300 billion fans. The number of works released by our creators and a total number of generated interactions have both increased considerably.

At the end of third quarter, the number of cumulative video uploads on Kuaishou App exceeded 550bn and during the quarter, our short videos sparked more than four billion interactions on a daily basis, up 40pc year-over-year. Meanwhile, strengthened by our supportive policies, the commercial value of our creators’ content continued to grow.

Over the past year, more than six million creators have received traffic support on a scale of RMB 100m and in addition, we have 20m creators earning revenue every year for three consecutive years.

Q3 2022, 22 November 2022

It is hard to disagree with their conclusion.

We will undoubtedly create sustainable value for our users, partners, employees and shareholders.

Q3 2022, 22 November 2022

The chart reveals that the shares have had a punishing bear market. They peaked at HK$412.50 in the immediate aftermath of flotation in the heady days of February 2021, when Chinese technology shares generally were flying high. Since then they have been as low as HK$31.75 but now look to be building a powerful base to drive the shares higher. The Coppock indicator is minus 70 and poised to give a buy signal.

Alibaba shares jump after US$1.5bn capital increase approved for one third owned fintech business, Ant Group

Alibaba shares are turning higher after a steep decline. There are signs that the Chinese authorities are adopting more positive policies towards the tech giant.

Alibaba (NYSE:BABA) shares surged nearly 13pc Wednesday as Chinese stocks rallied as Beijing gave approval to a massive capital increase to financial technology company Ant Group.

Prior to the start of trading, China awarded Ant Group a $1.5B capital increase. The move was seen on Wall Street as a sign that China may be easing up on more than two years of regulatory crackdowns on many of the country’s top tech companies.

And as Alibaba (BABA) owns about one-third of Ant Group, the Chinese e-commerce and Internet giant was expected to benefit from China’s new financial policies toward some of its largest companies.

Seeking Alpha, 4 January 2023

The chart shows a sharp reversal with a golden cross buy signal and the Coppock indicator turning higher from minus 100.

Cash and asset rich Tencent takes more shareholder friendly approach

Another Chinese internet giant with a positive chart is Tencent, also quoted in Hong Kong. One reason is that the company has shifted from chasing growth to creating value for shareholders. Tencent has huge assets, both in its operating businesses and its investments.

We operate a diversified portfolio of businesses spanning across social networks, games, advertising, and fintech services, each of which generates robust cash flow even under the current environment. Consequently, we generated operating cash flow of USD 25bn over the past 12 months. After taking into account payments for capital expenditure, media content, and lease liabilities, our free cash flow amounted to USD 15bn.

On the asset side, as of the end of September 2022, we have total gross cash of USD 44bn, stakes in listed companies with a fair value of USD 75bn, and stakes in unlisted companies with a carrying value of USD 48bn. This combination of cash flow generation and liquid asset holdings enable us to simultaneously invest in our business while returning capital to shareholders. We are deploying capital into growth areas we have highlighted, namely video accounts, international games, and SaaS products, as well as ecosystem enhancements such as nurturing a vibrant e-commerce ecosystem for Weixin and upgrading our back-end infrastructure.

Q3 2022, 16 November 2022

They are starting to use these investments to create value for shareholders.

In March 2022, we paid a dividend in kind through distribution of JD.com shares, which amounted to USD 13bn of value to shareholders. So, to date, we have returned a total of over USF 18bn to our shareholders. Today, we are declaring a special interim dividend of Meituan shares worth approximately USD 20bn, which will be distributed to shareholders in March 2023. Qualifying shareholders will receive one Meituan share for every Tencent shares they hold.

Q3 2022, 16 November 2022

It is too late to buy Tencent shares for the Meituan distribution but they are also buying back their own shares and bought HK$330m worth on 3 January 2023, which is a strong vote of confidence.

Strategy

A technical buy signal in which I am becoming increasingly interested is a combination of a breakout on a three monthly candlestick chart, a golden cross on the moving averages and a buy signal from Coppock using monthly figures.

If I look at Kuiashou Technology it hasn’t done that yet but it is close and that would be a powerful buy signal. It is similar to how capitalism works; waiting for these signals helps us to allocate our capital in the most effective way with the reassurance that our purchase is supported by a strong chart.

In the case of Full Truck Alliance the shares have only been trading for 20 months so we do not have the 24 months needed to make the first Coppock calculations. But the 3m chart shows an almost perfect base forming over five candlesticks (potentially 15 months) with a breakout on a decisive close above US$10. If and when that happens I am also sure that the Coppock figures, once we have some, will show a buy signal.

Just as a reminder the ideal breakout has explosive characteristics. A perfect breakout comes after unexpected good news with a gap in trading.

On the fundamental front one reason why Chinese shares are rising is because of signs of a better relationship between China and the USA.

Pinduoduo and Full Truck Alliance have suspended plans to list shares on the Hong Kong stock exchange after concerns about Chinese regulations were allayed by Beijing’s agreement to allow access to a US accounting watchdog, sources told The Information on Wednesday.

MT newswires, 29 December 2022

Hong Kong Tech focused ETF, KETC, has promising chart

This is another ETF giving exposure to Chinese shares quoted in Hong Kong which, as we see above, is not going to include Pinduoduo and Full Truck Alliance. There is no Coppock yet because we do not have the necessary two years of trading but the chart looks positive. The top 10 holdings make an interesting list, especially given the exposure to Kuiashou Technology. There is not that much difference between KTEC and KWEB and at the moment you cannot trade them on IG although I have asked about this.

It all adds to the feeling that the Chinese technology sector, especially the shares quoted on Wall Street and Hong Kong, are close to moving into a new bull market, maybe even are already in one. If this is happening it should not be too surprising, the Chinese market is both huge and has characteristics of a walled garden so you would expect local technology companies to deliver strong growth.

Despite the regulatory rumblings they also have much in common with US technology companies and are often founded and led by men who were educated in America and did their apprenticeship working for US technology companies. If you look at KTEC, until recently, all the shares have ever done is fall and that applies to a growing number of Chinese shares. A new bull market could be an exciting affair.

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