Washington’s ban on Huawei has plunged a number of Chinese tech stocks, along with the broader Hong Kong market, to a three-month low. Will the ban slow down China’s 5G development? Will it deal a blow to all Chinese hardware companies?
In fact, China has already moderated the pace of its 5G development. The nation’s three leading telecommunications operators have set aside 10 percent of their capital expenditures for 5G, while the rest is earmarked for 4G. This alone indicates that policymakers believe it’s not yet time to aggressively push 5G development.
The number of base stations needed for a 5G network will be at least four times that for 4G. This means consumers may need to pay four times as much in monthly fees. There are limited choices of 5G mobile phones and actual applications at this stage. 5G equipment suppliers may continue to see profit growth in the next one to two years. But their share price might fall off the cliff when the investment peak is over.
Should investors shun all hardware or trade-related stocks in view of the raging tech cold war? The dispute between the United States and China has been expanded to the political level. The US is trying all means to contain China. Imposing a ban on Huawei obviously has a political agenda.
I’ve said before that China is the best player in the World Trade Organization, and the US won’t continue to stay in this system if it cannot beat China. Therefore, investors should better avoid hardware stocks and be more cautious about export-related stocks.
It is probably better for them to focus on domestic consumption plays. China has a population of 1.4 billion. The number of consumers in the middle class, currently about 300 million, is expected to double in five years. Indeed, the domestic market is big enough for tourism, white liquor, and home appliance companies. They will be little affected by the trade war.
It is unlikely that 5G will become a key market theme. But cloud and mobile payment will continue to be in the spotlight for some time. Share prices in these sectors may continue to hit new highs as long as there are new developments.
The trade war could make you a winner. Remember, shares won’t be cheap if everyone is bullish. The market volatility offers an opportunity to do bargain hunting.
This article appeared in the Hong Kong Economic Journal on May 22
Translation by Julie Zhu
[Chinese version 做貿易戰贏家]
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