Chinese mega-cap technology stocks are stagnating, despite posting upbeat sales figures as concerns about the sustainability of China’s post-pandemic recovery weigh on market sentiment. The slowing economic recovery with few signs of government policy support and China’s growing rift with the U.S. are undermining sentiment toward Chinese assets.
Shares of Tencent Holdings Ltd (TCEHY), China’s most valuable company, have fallen more than -2% since announcing its fastest revenue growth in more than a year on Wednesday. Also, China’s internet search leader Baidu Inc (BIDU), has fallen more than -2% even after reporting stronger-than-expected Q1 sales on Tuesday. The Hang Seng Tech Index has fallen more than -7% this year, well behind the +26% gain in the Nasdaq 100 Stock Index ($IUXX) (QQQ).
Many analysts are projecting sideways trading for China’s mega-cap technology stocks at best. This week, Chinese economic news showed China’s industrial output, retail sales, and fixed investment grew much slower than expected in April. Kingston Securities said, “The market is more likely to remain in range-bound trading with not much upside in the short term due to a weaker yuan, geopolitical risks from this week’s G-7 meeting, and unresolved auditing issues.”
During this earnings season, most of China’s technology bellwether stocks reported stronger-than-expected revenue, but that was insufficient to improve market sentiment. Alibaba Group Holding (BABA) fell more than -5% today even after it laid out IPO plans for its logistic and grocery arms to unlock long-term value. The negative sentiment has investors fleeing the market as data from Bloomberg shows investors pulled $256 million from the KraneShares CSI China Intent ETF (KRANF) this month, putting the ETF on track for a fourth month of outflows.
Chinese tech stocks have fallen after investors’ hopes for a swift rebound in growth failed to materialize. With all of the market uncertainties and signs that China’s recovery is slowing, the outlook for Chinese technology stocks in the near term is not promising. Forsyth Barr Asia Ltd said that despite an improvement in profits for China’s mega-cap technology companies, investors are expecting topline growth to be “pretty tepid” while waiting for an improvement in guidance.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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