Goola Warden Thu, May 26, 2022
Semiconductor Manufacturing International Corp (SMIC) will be added to two ESG-focused indices in Hong Kong, despite being a sanctioned entity in the US, Bloomberg reports. SMIC will join the HSI ESG Enhanced Index and the HSI ESG Enhanced Select Index on June 13. Its shares rose as much as 1.3% on May 26 before erasing gains. In 1Q2022, SMIC’s earnings more than doubled y-o-y to US$447.2 million ($615.8 million).
For inclusion into the ESG (environmental, social and governance) indices, Hang Seng Indices screens stocks for their ESG risk ratings by data provider Sustainalytics, compliance with the United Nations Global Compact Principles and involvement with controversial products such as coal, tobacco and weapons.
The company was recently included in the Hang Seng Index and is already a constituent of the Hang Seng Tech Index. Launched on July 27, 2020, the Hang Seng Tech Index tracks the 30 largest tech-themed companies listed in Hong Kong. These companies are exposed to selected tech themes including cloud, digital, e-commerce, fintech, internet and autonomous driving. However, It is unclear how diversifying supply chains in the autonomous driving, semiconductor and chip sectors away from China will impact the performance of these Chinese companies.
The index is reviewed quarterly and has an IPO fast entry rule which allows for the direct inclusion of a newly listed company if it meets certain criteria. The weighting of each stock in the index is capped at 8%. In addition to SMIC, its components include Tencent, Xiaomi, Li Auto, JD.com, Lenovo, Meituan and Alibaba Group Holding.
The Chinese tech sector and hence the Hang Seng Tech Index are having a challenging 2022. No surprise then that the Lion-OCBC Securities Hang Seng Tech ETF (HST), which is priced in Singapore dollars and is meant to mirror the trend of the Hang Seng Tech Index, is the year’s top loser among the ETFs, down 27.7% year to date. Over a one-year period, HST is down 48%.
Technically, it can be said that smoothed RSI, which is below the 50% line and in negative territory, remains entrenched there. A move above the 50% line would provide the impetus for HST to rebound. HST ($0.69) itself is entrenched beneath its 50-day moving average — currently at 71.8 cents.
After gaining 27% in 2020, and losing 23% in 2021, Xtrackers MSCI China UCITS ETF (TID) has, year to date, been the third worst ETF performer, down 36% in Singapore dollars. TID tracks the MSCI China Index which includes several tech-related stocks such as Tencent, Alibaba, JD.com, and Meituan. It also includes giants such as China Construction Bank, Ping An Insurance, Industrial Commercial Bank of China (ICBC) and Bank of China. As a result, TID has outperformed the tech sector.
Technically, TID has more white candles than black candles in its recent three-week trading range, forming an equilateral triangle chart pattern. These are usually continuation patterns but are also at times base formations. For TID ($20.5), a break above $21.7 — a level which coincides with a resistance — a pattern breakout and the declining 50-day moving average would trigger a rally. A fall below $20.01 would invalidate this positive outlook.
SMIC itself has risen out of a double bottom and could be forming a reverse head-and-shoulders although it is still early days.
Chinese premier Li Keqiang is reported to have highlighted the economy’s weak performance on May 25, saying that economic indicators in China have fallen significantly, and difficulties in some aspects and to a certain extent are greater than when the epidemic hit in 2020.
Nonetheless, investors may want to stay more positive at current levels, on both SMIC and TID as stock prices tend to move well ahead of economic fundamentals.
