Chinese Stocks Helping FANG+
The FANG+ index is a good, but far from perfect, proxy for mega caps because of the inclusion of Chinese names which face exogenous risks that do not apply to US-based mega-caps.
Chinese Stocks Helping FANG+
Summary
- On a relative basis versus the S&P 500, the NYSE’s FANG+ index has been trending lower since last November around the time of the peak of the growth/Tech trade.
- One important factor to note about the FANG+ Index is the membership of two Chinese mega-cap stocks: Baidu and Alibaba.
- Given the past year and a half’s news slate regarding the potential delisting of Chinese stocks on US equity markets, these two names are in a different boat than the rest of the FANG+ cohort, and that has been reflected in price action.
Originally posted on August 30, 2022
Given the market cap-weighted methodology of the index, the S&P 500 receives outsized impacts from the largest stocks, making mega caps like Apple (AAPL) or Amazon (AMZN) a critical group to look at. The FANG+ index, which tracks some of the largest and most highly traded tech giants, helps to provide a glimpse at the performance of said mega caps. On a relative basis versus the S&P 500, the NYSE’s FANG+ index has been trending lower since last November around the time of the peak of the growth/Tech trade, but it peaked even further back in early 2021. The relative strength line then hit a low in the late spring of this year and has been on the move higher alongside the S&P 500 ever since. In the past few weeks, however, the line has begun to roll over, moving in line with that downtrend.
One important factor to note about the FANG+ Index is the membership of two Chinese mega-cap stocks: Baidu (BIDU) and Alibaba (BABA). Given the past year and a half’s news slate regarding the potential delisting of Chinese stocks on US equity markets, these two names are in a different boat than the rest of the FANG+ cohort, and that has been reflected in price action. Put differently, the FANG+ index is a good, but far from perfect, proxy for mega caps because of the inclusion of Chinese names which face exogenous risks that do not apply to US-based mega caps. Excluding those two, the FANG+ index’s relative strength line versus the S&P 500 peaked far later in late 2021, and the recent turn lower has been a more concrete rejection of a breakout from the recent downtrend.
While delisting risk has generally plagued BABA and BIDU for more than a year, leaving them 70% and 58% below all-time highs respectively, at least in the short term there has been some relief. Headlines out late last week reported the signing of a cooperative agreement for auditing these companies, resulting in a lower - but still real - probability of delisting. As a result, BIDU and BABA have left their peers behind as the only two FANG+ members in the green since the broader market’s August 16th high. For BIDU, that positive performance so far has held in spite of a weak reaction to earnings Tuesday as well. In other words, positive news for Chinese members of the FANG+ stocks has helped to mask a degree of the weakness of one of the more important indicators of broader market health.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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