(Bloomberg) – The tide has finally turned for Chinese tech stocks as the end of years of regulatory crackdowns reignited demand in an industry once described as “uninvestable.”
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The Hang Seng Tech Index rose 3.2% on Monday, led by Alibaba Group Holding Ltd. after a senior central bank official said the crackdown on the internet sector was coming to an end. The broader market also rose, with Hong Kong-listed Chinese stocks up 2%.
The move signals the end of pressure on a key engine of China’s private sector and comes after authorities scrapped strict Covid curbs and shored up the struggling real estate sector. The shift has given global markets a boost, although it comes at the expense of tycoons like Jack Ma, who was forced to relinquish control of Ant Group Co. to appease regulators.
“Following the late 2020 regulatory reset, we are seeing early signs of an easing of the regulatory environment with government support for the private sector,” Morgan Stanley analysts including Gary Yu wrote in a Jan. 8 note. “For the past 1-2 years, Alibaba has been the focus, so we think it could outperform other Chinese internet stocks as the environment eases.”
Sentiment towards Alibaba was boosted after Ma agreed to relinquish control rights to Ant, whose failed IPO in 2020 marked the start of a sweeping crackdown on the sector. While the change would delay an eventual listing of the company, it is in line with the authorities’ intent to improve corporate governance as part of an overhaul.
Goldman Sachs Group Inc. has put Alibaba on its condemnation list, believing that after two years of falling earnings revisions “the worst is behind us” with ad revenue expected to recover. Strategists at Goldman and Morgan Stanley have upgraded their views on a number of big tech companies, citing faster-than-expected reopening and a normalizing regulatory environment.
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“Investors could see this as a major step forward in eliminating the regulatory backlog since Ant’s IPO failure,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “This is positive for Alibaba shares and investor sentiment.”
Jefferies Financial Group Inc. raised Alibaba’s share prices in Hong Kong and the United States on Sunday, saying the company will benefit from quality service and competitive prices when China’s economy reopens.
Still, the landscape for tech companies has changed significantly in recent years, with tighter regulatory scrutiny of privacy, online gaming, and attempts to unravel investments in other companies. At their 2020 peak, Alibaba’s shares reached HK$307.40, compared to Monday’s close of HK$110.40. The consensus expectation of the analysts polled by Bloomberg is a target price of HK$134.85.
Alibaba is not alone. Tencent Holdings Ltd. shares closed at HK$362 in Hong Kong on Monday, nearly half below their 2021 peak.
Billionaire Jack Ma relinquishes control of the Ants during Company overhaul (1)
For now, investors are welcoming the improved outlook as the Hang Seng tech indicator is up more than 60% from its October low. Risk-on sentiment prevailed across Asia on Monday, setting a key MSCI benchmark on track to enter a technical bull market.
Overall, Chinese equities are benefiting from an improving outlook as policymakers implement pro-growth policies and the country’s borders reopen. Goldman expects China stocks to gain another 15%, helped by low valuations and policy moves in areas like housing.
–Assisted by Charlotte Yang.
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