Chinese internet stocks have been on a major downtrend for the past 15 or so months. For example, KWEB (KraneShares CSI China Internet ETF), a fund that tracks Chinese companies whose core business is focused on the internet and web-related technologies, has plunged more than 65% from its peak in February 2021. , weighed down by a relentless technology sector. repression and pandemic uncertainty.
While the coronavirus problem won’t go away as long as the Chinese government sticks to its “Zero Covid” strategy, there are encouraging signs on the surveillance front. For example, regulators recently signaled that strict oversight of tech companies may soon end as part of efforts to restore capital market stability and support growth targets.
After the latest lockdowns hit the economy, the Chinese Communist Party (CCP) is doing all it can to improve business conditions and the financial system, pledging to step up stimulus measures to achieve its goals while minimizing the negative impact of the current health crisis.
The Chinese Communist Party will hold its twice-a-decade national congress in November, an event where President Xi Jinping is expected to secure a third term. To avoid any setbacks or unforeseen leadership challenges, Xi must thoroughly control the damage on the economic front to send the message that the “status quo” works for everyone.
To create a picture of prosperity ahead of the upcoming Party Congress, the government is likely to roll out more growth-supportive measures and further reduce regulatory measures throughout the third quarter, a scenario that will strengthen economic activity and will increase the profits of Chinese companies. Against this backdrop, internet stocks could thrive in the coming months, at least until the end of the year, when cooler temperatures could trigger another wave of Covid-19 infections and new lockdowns.
Looking ahead to the third quarter, KWEB is at a crucial technical moment, probing key resistance, ranging from 32.85 to 34.00. Breaking through this area will give a strong bullish signal and could be the start of a rally towards the 40.00 area. Stronger, focus shifts to the psychological level of 45.00, followed by 52.55, the 38.2% Fibonacci retracement of the February 2021/March 2022 selloff.
KWEB technical charter
Chart created with TradingView, prepared by Diego Colman
On the other hand, if KWEB fails to break through the resistance at 32.85/34.00 on the weekly closing prices and resumes its decline, initial support appears at 29.00 and 24.50 thereafter. If this last support is breached on the downside, the bullish reversal thesis would be invalidated, a situation that could encourage the bears to launch an attack on the 2022 lows.