Hi team,
quick update on my side
Bing Chilling will come out next week sometime
But thought I’d send out a quick graph I’ve been cooking up (and that I’ll introduce to Bing Chilling)
Basically I’ve taken Jamin Ball’s Clouded Judgment (which looks at US tech/software multiples) and overlaid the China tech multiples on the same axis.
A few interesting things to call out:
Even with the rally in Chinese equities we’ve seen this year ( $KWEB is up 24% YTD) Chinese stocks are still at a significant discount to their US tech counterparts.
The most expensive Chinese tech stocks ( Sensetime and $GDS ) are barely near the US tech trendline. This suggests that the entire sector is relatively undervalued.
The majority of companies (both USA and China) cluster around 10-20% revenue growth. There are some stalwards, but you can pick them out with one hand. Very few tech companies ( either China or USA) are growing >25%.
There are some expensive companies relative to growth (like $NET $CRWD $IOT ).
There are some cheap companies relative to growth (like Inspur $PDD and Xiaomi - although in Xiaomi’s case their margins may be a drag on valuation).
Interesting observation: Sensetime technically looks expensive relative to China comps at 11.6x fwd revenue. BUT if you benchmarked it to US tech comps it’s cheap.
The correlation between growth and multiple is MUCH stronger in US tech markets than in China tech markets. It’s unclear why - maybe China markets prioritise profitability, or maybe there aren’t enough buyers acting rationally and bidding up growth names. It’ll be interesting to see if this changes in future (especially as more US instos/HFs start to wade into China to prevent underperforming their benchmarks)
Nobody knows what’s in store - but it would not surprise me in the least if we saw the entire China tech space move up 0.5x in multiple expansion in the next month. This would probably bring the two trendlines a bit closer together.
But is it likely that we see China tech companies surpass US tech multiples? Anyone’s guess, but that seems unlikely to me (unless we some real FOMO happening later on in 2025).
Until then, I’ll keep a watch on this graph and call out more interesting developments as markets re-price into 2025.
It seems the current trade is China tech re-pricing upwards and US-tech re-pricing either flat or down. We shalll see how it plays out.
Ta,
Zoomer