Contrarian who called China Tech Selloff says it’s not over yet

(Bloomberg) – Manuel Muehl told investors to sell Chinese tech stocks last summer when nearly all of his peers said they were buying.

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Nine months and roughly $1 trillion in market value loss later, 30-year-old DZ Bank AG analyst warns of further difficulties ahead as China’s slowing economy and uncertain regulatory environment frighten global investors.

Muehl, whose Frankfurt base only underscores his underdog status, was the first of more than 70 analysts tracked by Bloomberg to issue a bearish call on China’s tech sector in July. Its recommendations for U.S.-listed Inc. and Alibaba Group Holding Ltd. have been sharper than any of its peers over the past 12 months, with shares falling 30% and 58% , respectively, since his appeal.

“We saw all of these risks overhead and felt that hardly anyone in the market was giving it enough credit,” Muehl said in an interview this month, citing Beijing’s continued crackdown on the tech industry. “No one knows what the true risk premium for Chinese stocks is right now as the market is still in the process of price finding.”

China’s strict adherence to a Covid Zero policy and the country’s darkening economic outlook have only reinforced this belief.

“You have a very difficult macroeconomic situation – the real estate sector, which clearly has huge problems, and the big cities, which are completely locked down,” he said. “All of these things really hurt consumer confidence.”


The Hang Seng Tech index of Chinese tech stocks has fallen more than 60% since a peak in February 2021, hammered by Beijing’s crackdown on private companies ranging from education to the online gaming sector. The relentless selling, which has wiped out $1 trillion in market value from index members since Muehl made his calls in July, has led some fund managers to question whether the tech sector is even investable.

Yet the majority of Wall Street analysts remain unfazed. They cited longer-term potential, the benefits of expected stimulus and relatively cheap valuations.

The 12-month average price target for US-listed Alibaba shares, for example, stands at $162.94, more than 89% above Thursday’s closing price. Muehl’s latest target is $100. Its track record might offer some clues as to how things might play out: Bloomberg data shows that following its recommendation for the past year on the stock would have yielded a 39% return.

Muehl, who worked for two German financial firms before joining DZ Bank in 2019, remains pessimistic even after tech stocks staged a brief rally last month as policymakers pledged to end surveillance of the sector. and stabilize capital markets. He added that the potential delisting of Chinese companies from US stock exchanges over audit disagreements continues to be “a very realistic risk”.

Sell ​​a call

He saw little upside in corporate fundamentals over the next few quarters. It comes as the prolonged crackdown and a difficult macroeconomic environment have pushed Alibaba and Tencent Holdings Ltd. to report their weakest quarterly revenue growth on record.

The consequences of such a rare call can be dramatic. In March, JPMorgan Chase & Co. – one of the few other brokers with an equivalent sell rating – deemed the sector “uninvestable”. Bloomberg News reported last week that the Wall Street bank was removed as lead underwriter for a Hong Kong tech company listing after it lowered its share price target.

DZ Bank was relatively spared given that it has no capital market activity in Hong Kong.

As for changes that would make him positive about the sector, Muehl said he wanted to see a credible and lasting change in regulatory policy, rather than “adding new rules every two weeks.”

“You have to find an end to this negative news flow and you have to have a positive news flow,” he said. “At the moment, we don’t have any of that.”

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