Tech stocks in China and the U.S. are popping, although for different reasons. In China, an agreement between Washington and Beijing over their long-running audit disagreement triggered gains in Chinese tech stocks because their U.S. listings appear to be protected.
Meanwhile, in the U.S., hedge funds are betting big on mega-cap tech stocks with conviction levels approaching levels not seen since before the pandemic selloff.
The MSCI Asia ex-Japan Index jumped from around 513 before the agreement between Washington and Beijing was announced to about 526 after the deal. Meanwhile, the NASDAQ Golden Dragon China Index rose 12% over the last five trading sessions on the back of the news that a deal was imminent, followed by the official cementing of the agreement.
U.S.-listed shares of Alibaba Group Holding Ltd (NYSE:BABA) climbed as much as 14% over the last five days, while U.S-listed shares of JD.com rose as much as 18% over the last five trading sessions. Pinduoduo was up as much as 29% over the same timeframe.
The agreement grants the Public Company Accounting and Oversight Board (PCAOB) the power to choose the companies, engagements and possible violations it scrutinizes without the oversight of Chinese officials. China hasn’t allowed regulators from beyond its borders to review the audits of Chinese firms, claiming the need to protect national security.
SEC Warns That “The Proof Will Be In The Pudding”
Five state-owned Chinese firms said earlier this month that they would choose to de-list their shares from stock exchanges in the U.S. before being forced out in 2024 due to the pending ban. Despite the deal, regulators in the U.S. expressed caution about whether they can enforce it successfully.
In a statement, the Securities and Exchange Commission emphasized that the framework set out in the agreement is “merely a step in the process.” SEC Chair Gary Gensler added that it would “be meaningful only if the PCAOB actually can inspect and investigate completely” the Chinese firms that audit Chinese companies.
If the PCAOB is unable to do so, about 200 Chinese firms will be banned from U.S. stock exchanges if they continue to use those audit firms.
Hedge Funds Load Up On Mega-Cap Tech Names
In the U.S., hedge funds helped boost the Nasdaq Composite by as much as 9% and the Nasdaq 100 by nearly 8% over the last month as they loaded up on mega-cap tech stocks. Goldman Sachs said in a recent report that hedge funds reduced their overall holdings and increased the concentration of their portfolios by focusing on their highest-conviction names.
The firm also said that the average weighting of the top 10 holdings among hedge funds during the second quarter rose to 70%, the highest concentration since the first quarter of 2020. In fact, Goldman said conviction rose to levels not seen since the beginning of the pandemic. Further, position turnover among hedge funds dropped to an all-time low of 23%.
Hedge funds added to their positions in technology and consumer discretionary while slashing their holdings in energy and materials. According to Goldman Sachs, Amazon.com, Inc. (NASDAQ:AMZN) replaced Microsoft Corporation (NASDAQ:MSFT) as the favorite long position among hedge funds. Fund managers also boosted their positions in NVIDIA Corporation (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), Tesla Inc (NASDAQ:TSLA) and Atlassian Corporation PLC (NASDAQ:TEAM).
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