The counterpart who called China Tech Selloff says it’s not over yet

(Bloomberg) – Manuel Muehl asked investors to sell Chinese technology stocks last summer when almost all of his peers said buy.

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Nine months and around a trillion dollars in lost market value later, the 30-year-old analyst at DZ Bank AG warns of further pain ahead as China’s declining economy and uncertain regulatory environment scare away global investors.

Muehl, whose base in Frankfurt only underscores his status as an outsider, was the first among more than 70 analysts tracked by Bloomberg to send out a bearish call to China’s technology sector in July. His recommendations for US-listed Inc. and Alibaba Group Holding Ltd. has been more accurate than any of his peers over the past 1[ads1]2 months, with shares falling 30% and 58% respectively since he called.

“We saw all these imminent risks and felt that virtually no one in the market gave it enough credit,” Muehl said in an interview this month, referring to Beijing’s ongoing breakdown of the technology industry. “No one knows what the real risk premium for Chinese equities is right now because the market is still in a price-finding process.”

China’s strict adherence to a Covid Zero policy and the nation’s darker economic prospects have only strengthened this belief.

“You have a very tough macro situation – the real government sector, which clearly has massive problems, and big cities that are completely locked in,” he said. “All of these things really hurt consumer confidence.”


The Hang Seng Tech index of Chinese technology stocks has fallen more than 60% since a peak in February 2021, beaten by Beijing’s breakdown of private enterprises ranging from education to the online gaming sector. The relentless sale, which wiped out $ 1 trillion in market value from index members since Muehl called in July, has prompted some money managers to question whether the technology sector was investable at all.

Still, the majority of Wall Street analysts remain unaffected. They mentioned a long-term potential, the benefits of expected political stimulus and relatively cheap valuations.

For example, the average 12-month price target for Alibaba’s US listed stock is $ 162.94, more than 89% above Thursday’s closing price. Muehl’s final goal is $ 100. His track record can provide some clues as to how things might play out: Bloomberg data shows that following his recommendation for the past year on the stock would have yielded a return of 39%.

Muehl, who worked for two German financial firms before joining DZ Bank in 2019, remains pessimistic even after technology stocks rose briefly last month as politicians vowed to end the investigation into the sector and stabilize capital markets. He added that the potential delisting of Chinese companies from US stock exchanges due to audit disagreements continues to be “a very realistic risk.”

Sell ​​Call

He saw little upside to the company’s fundamentals in the coming quarters. This comes as the prolonged downturn and a tough macro environment put pressure on Alibaba and Tencent Holdings Ltd. to report its slowest quarterly revenue growth ever.

The consequences of such a rare conversation can be serious. In March, JPMorgan considered Chase & Co. – one of the handful of other brokers with a sales equivalent rating – that the sector was “uninvestable”. Bloomberg News reported last week that Wall Street Bank was removed as the top guarantor of a technology company’s IPO in Hong Kong after cutting its share price target.

DZ Bank has been relatively unharmed given that it does not have a capital market business in Hong Kong.

As for what changes will make him positive for the sector, Muehl said he wanted to see a credible and sustainable shift in regulatory policy, instead of “adding new rules every two weeks.”

“You have to put an end to this negative news flow, and you have to have a positive news flow,” he said. “Right now we have none of that.”

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