Are Big Tech Stocks Following In The Footsteps Of Their Chinese Counterparts?

01/27/22 10:40AM EST

The guest commentary below was written by Jesse Felder of The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.

Are Big Tech Stocks Following In The Footsteps Of Their Chinese Counterparts? - Stocks crash test dummies cartoon 02.18.2016

In a year filled with notable market phenomena, one of the more notable of 2021 was the dramatic divergence between US and Chinese tech stocks.

While the former consistently surged to set new highs the latter crashed, giving back all of its gains since the onset of the pandemic and then some.

Are Big Tech Stocks Following In The Footsteps Of Their Chinese Counterparts? - Screen Shot 2022 01 25 at 4.15.35 PM

The popular reasoning for the crash in the Golden Dragon China Index (HXC) argues that the Chinese government crackdown on many internet-based businesses was responsible for a major reset in the valuations of the associated equities.

While this may be true to some extent, it is also true that the downturn in the Chinese credit cycle may have played a major role, as well.

Are Big Tech Stocks Following In The Footsteps Of Their Chinese Counterparts? - Screen Shot 2022 01 25 at 4.13.24 PM

It is also true that there is now bipartisan support in Washington for a crackdown on Big Tech here in the US.

Of course, it won’t look exactly the same as China’s crackdown but the impetus for both is very similar if not identical.

However, just as for China’s tech stocks, a major shift in monetary policy may be even more ominous for the valuations of US tech stocks as represented by the Nasdaq 100 Index (NDX).

Are Big Tech Stocks Following In The Footsteps Of Their Chinese Counterparts? - 1 27 2022 10 31 33 AM

In fact, more than anything else the expected future direction of the Fed’s balance sheet may help to explain the recent weakness in the stock market which has been led by the tech sector.

And if the Fed follows through with its “forward guidance” in this regard, the valuation reset in big tech stocks may be only just beginning.

EDITOR'S NOTE

This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.

© 2022 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.