China Tech Stocks Are Catching Up With Nasdaq and Where the Investment Opportunities Are

With the Fed clearly pivoting, the next few months could offer a window of easier global liquidity. Historically, a weaker U.S. dollar and looser liquidity tend to boost equities worldwide, and non-U.S. stocks often outperform U.S. stocks. This year fits that pattern perfectly: the Hang Seng Tech Index is up around 30%, the Nasdaq Golden Dragon China Index (HXC) is up 18%, while the Nasdaq Composite has gained 11%.

Valuation Still Looks Attractive

Right now, the forward P/E for both the Hang Seng Tech and HXC is around 19x, compared with roughly 29.8x for the Nasdaq. That puts Chinese tech stocks at just 63% of U.S. multiples.

Some discount is reasonable, but a softer dollar and lower interest rates are clear catalysts. For long-duration, platform-style companies like internet, software, and consumer service leaders represented in Hang Seng Tech and HXC, the valuation “center of gravity” could shift higher under these conditions.

Cross-market comparisons from MSCI also show China still trading at a relative discount.

Over the past 15 years, HXC’s forward P/E has tended to move inversely with Fed funds rates. For example, in 2020–2021, when rates fell to near zero during COVID, HXC’s forward P/E spiked toward 50x. Low rates and easy liquidity can have a dramatic effect on valuation.

Fund Flows Are Turning

The “ABC” trade—Anything But China—dominated 2023–2024, as capital rotated out of China into other emerging markets. That trend now appears to be reversing.

Goldman Sachs prime brokerage data show hedge funds have been net-buying Chinese equities at the fastest pace in seven weeks, driven by long buying and short-covering. In August so far, China is the most net-bought market on Goldman’s PB books. That suggests investor interest in Chinese tech is heating up.

Earnings Are Becoming More Selective

Previously, low CPI readings in China put pressure on growth across several sectors. Recent data, however, show improvement: July core CPI rose for a third consecutive month and turned positive month-over-month, indicating stronger domestic demand and a recovery in services consumption.

Looking ahead, tech and consumer earnings will largely depend on two key internal factors:

Whether property and credit transmission stabilizes further
Whether external trade and tech restrictions tighten again

This means earnings strength is likely to be selective, not broad-based.

Key Opportunities

By theme, Goldman Sachs remains constructive on China’s top-10 tech names. As industry consolidation continues, leaders are likely to capture a disproportionate share of the gains.

For investors, the main areas to watch are:

Tech giants: The BATs (Baidu, Alibaba, Tencent), Meituan, JD.com—companies likely to benefit most from consolidation
Consumer tech platforms: High-growth internet and service companies
Valuation and liquidity plays: With a weaker dollar and falling rates, Chinese tech discounts could shrink

My Take

From an investment perspective, the China tech re-rating is just getting started. In the short term, capital inflows, valuation support, and low rates are key catalysts. In the medium term, earnings performance will depend on policy stability and trade conditions.

For new investors, the key is focusing on industry leaders and structural opportunities, rather than chasing every rally.

In short: weaker dollar, lower rates, and returning capital make China tech an attractive window, but selective stock picking is crucial for balancing growth and risk.