Even as technology stocks continue to dominate the U.S. stock market, the same cannot be said for China. To better understand why rushing into buying Chinese tech stocks may not be advisable at this time, let’s take a closer look at the KraneShares CSI China Internet ETF (ticker: KWEB) – an exchange-traded fund that invests in this sector.
The KraneShares CSI China Internet ETF
KWEB tracks the CSI Overseas China Internet index and holds the four largest Chinese tech companies – Alibaba Group Holding, Tencent Holdings, PDD Holdings, and NetEase – as its major holdings.
Examining KWEB’s Performance
Stocks and ETFs experience different phases: bottoming, advancing, topping, and declining. By analyzing KWEB’s four-year weekly chart, we observe that the ETF broke down from a rounding top pattern, experiencing a significant 82% crash from $96 to $17. Despite this significant drop, there is no evidence to suggest that KWEB has transitioned from the declining phase to a bottoming phase.
The Importance of a Bottoming Phase
During a bottoming phase, asset prices stabilize and trade around their moving averages, while the declining moving averages begin to stabilize and turn upward. However, when looking at the chart, KWEB still trades below all of its moving averages, which are currently in a downward trajectory.
Potential Opportunities for Value Buyers
After an 80% decline, value buyers often seek opportunities to enter the market. However, before considering purchasing KWEB, it is crucial for the ETF to hold above a previous low and gain support from its moving averages.
Time Is on Your Side
In the words of a famous Rolling Stones song, “Time is on your side,” indicating that it is wise to wait for a safer entry point before making an investment.
