China’s challenge to Silicon Valley

Does U.S. Have the Upper Hand in Trade War? A Consensus is Emerging

Chinese tech stocks warmed up this spring. Will they have an even hotter summer?

Iqiyi (IQ), the “Netflix of China,” is up more than 60 percent in the last month. Mobile-based social network Momo (MOMO) rose 38 percent and e-commerce service provider Baozun (BZUN) has ripped 27 percent.

Meanwhile major domestic peers like Netflix (NFLX), (AMZN) and Facebook (FB) haven’t even risen double digits. All told, the Golden Dragon Halter Index ($HXC) tracking U.S.-listed Chinese techs is up 5 percent in the last month — more than double the gain of the Select Technology Index ($IXT).

RadarScreen® showing 1-month performance of key Chinese & U.S. Tech Stocks

It comes at an interesting time for investors and traders who love tech. First of all, China’s affluent consumer class mostly emerged in the Internet age, so commerce for them has always been e-commerce. Second, their culture is more tech-focused and obsessed with videogames and mobile apps. Third, their entire financial system market is making historic openings to the world as we speak: mainland shares were just added to MSCI’s indexes, oil’s trading in yuan-based futures and regulations have been tightened.

Fourth — and perhaps more interestingly — initial public offerings (IPOs) are playing a big role in the boom. IQ, for instance, is a new company. Other newcomers like Huya (HUYA), Bilibili (BILI) and Zuora (ZUO) have also blitzed higher.

Speaking of IPOs, China’s about the pull off the world’s biggest offering in more than three years: an estimated $10 billion from smart-phone maker Xiaomi. This deal will price in Hong Kong, not New York — out of reach for most American investors. That’s not all. It’s believed that some of the capital raised will help Xiaomi enter the U.S. market. Remember, Apple (AAPL) has struggled to gain traction in China. Now there could be real competition in its own backyard, at the very same time iPhone sales are slowing.

Bottom line: China’s tech companies have shown they can hold their own in the stock market. Now may be the time they really give Silicon Valley a run for its money.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.