Market Insights

Forget about trade wars. The big story with China this year may be the runaway rally in the country’s technology sector.

The Golden Dragon Index ($HXC) has surged 9 percent in the last month and is up 28 percent so far in 2019. That’s more than twice the gains of the Nasdaq-100 and SPDR Technology Fund (XLK) over the same periods.

Let’s look at some of the companies driving the trend. We’ll focus on names with at least $5 billion of market capitalization:

• Huya (HUYA), up 37 percent in the last month: This company’s all about streaming video games and e-sports. Monday night, it reported a 31 percent gain in monthly active users and 73 percent growth in paying users.
• Iqiyi (IQ), up 32 percent in the last month: The “Netflix of China” reported 72 percent user growth on February 21.
• Ctrip.com (CTRP), up 27 percent in the last month: The “Expedia of China” blitzed past estimates on Tuesday night and guided above consensus.
• Tencent Music (TME), up 24 percent in the last month: The “Spotify of China” has been running into its inaugural earnings report on March 19.

Three of these four companies only had their initial public offerings in the last year — HUYA, IQ and TME. Remember, some major U.S. IPOs, including Lyft and Pinterest, are expected later this year.

Other large Chinese names that have run at least 10 percent in the last month include e-commerce stocks Momo (MOMO) and JD.com (JD), along with HUYA’s former parent, YY (YY).

Tech Investors Look Beyond China

Interestingly, tech stocks in other countries have also been moving. At least three other names have shown some bullish activity recently.

• Mercadolibre (MELI), up 25 percent in the last month. The Argentine e-commerce stock spiked to a new all-time high on February 27 after profit and sales beat estimates. It also reported big gains on its MercadoPago electronic-payment service. The “Square (SQ) of Buenos Aires”?
• PagSeguro Digital (PAGS), up 20 percent. Brazil’s own e-payments company beat estimates on February 25, with transaction volume almost doubling.
• Yandex (YNDX), up 5 percent: The Russia Internet company is the only name up less than 10 percent. However, it had a large bullish options strategy earlier in the week. The trader was looking for a rally of almost 40 percent.

In conclusion, investors have sought opportunity in many new areas this year. That seems especially true in the technology space, where companies based in emerging markets have outperformed their domestic counterparts.