Some note April 29 as a watershed day, the day the Politburo called on regulators to act in alignment and support the platform economy — a term referring to internet companies that offer multiple services. But indexes heavily weighted to Chinese tech names, like the MSCI China index, have moved largely sideways since then. The CSI 300 index, which only tracks stocks listed in China and leans more towards financials, industrials and consumer staples, rose, albeit only a little.
Excitement built earlier this month after the Wall Street Journal reported that Chinese regulators were preparing to wrap up their investigation into ride-hailing company Didi Global Inc. and make its key apps available to the public again. download. The stock jumped 68% in a single day. Didi, which like Uber Technologies Inc. and Lyft Inc. relies on its Android and iOS software to connect with customers and drivers, halted 26 of its apps when Beijing decided last year that sharing of company data warranted further investigation. .
As expected, this national security review led Didi to seek disbarment from New York shortly after his debut. Any investors surprised by recent news that restrictions on its application were about to be lifted were simply not paying attention. The company literally said it when it implored shareholders last month to pass a motion to strike out.
“The company has concluded that it must complete the cybersecurity review and rectification in order to resume normal operations…and that if it does not withdraw from the NYSE, it will not be able to complete the review and rectification. rectification of cybersecurity.”
On May 23, investors answered that call and the shares will no longer trade on the New York Stock Exchange. Beijing ending the app store ban was the next logical step. Ironically, stocks barely moved when the actual vote was announced, the real catalyst for officials to slack off. Clearly, the optimists – who rallied on the news of an easing – and the pessimists – who ignored the earlier shareholder vote – have both taken something away from this development.
Then there is Ant Group Co., the financial subsidiary of Alibaba Group Holding Ltd., whose IPO was canceled at the last minute after Jack Ma’s now infamous October 2020 speech criticizing regulators. .
A relaunch of Ant’s public listing would come closest to forgiveness for Ma and Alibaba, and would rightly be seen as a signal from Beijing that the crackdown is over. Bloomberg News reported last week that the China Securities Regulatory Commission was considering allowing a listing to be relaunched, although the CSRC and Ant later said they had no such plans. Even the carefully worded answers, a kind of denial without denial, could be taken by bulls and bears alike as the sign they are looking for. Alibaba shares jumped 4.4% after the Bloomberg News report, but fell again after the CSRC and Ant statements.
Alibaba sent its own signal to the market last month by declining to offer its usual outlook for the year, a move that speaks to the lack of clarity emanating from Covid lockdowns, supply chain grunts and global economic turmoil . But vagueness about the regulatory environment is certainly one of the factors that management cannot accurately model. For example, executives said the company is likely to benefit from stimulus measures announced by the government, while reiterating its commitment to helping small and medium-sized businesses, which could impact profit margins.
Others are suffering too. Online content provider Bilibili Inc. surged after Chinese media outlet Caixin announced it was cutting jobs in its gaming and live-streaming divisions, but slumped days later after losing revenue. DouYu International Holdings Ltd., another live streaming provider, is down nearly 30% since that Politburo meeting, after noting that tighter regulations will continue to weigh on revenue.
The plethora of positive signs seems enough to prompt people to speculate that the bottom has been reached, and perhaps Beijing will even bolster investor confidence ahead of the 20th Communist Party Congress this year. It’s wishful thinking.
As a clear-headed fund manager once told me, “You don’t go to Hawaii for the weather, you go there for the climate. The thing is, single-day clouds or sunshine are short-term distractions from the long-term thesis. China remains one of the largest consumer economies in the world, even with its regulatory and economic challenges, but the heady days of growth are undoubtedly over.
The argument that the time has come to return to Chinese technology is largely reinforced by the quantitative analysis. The sector is trading at a 10% discount to the broader market, compared to a historic premium of 35%, according to a recent strategy note by Bernstein’s Rupal Agarwal, Robin Zhu and Shivam Gupta. They calculate that drawdowns have already reached 37%, surpassing the 35% seen during the 2018 bear cycle. “While risks remain, we believe there is reason to believe an inflection point has been achieved,” they wrote on June 10.
But there is a reverse. “From a fundamental perspective, I see no reason to become optimistic at this time,” DZ Bank AG analyst Manuel Muehl said in a June 7 email, Bloomberg News reported. He was the first of more than 70 analysts to issue sell notes on Alibaba and its e-commerce company JD.com Inc. a year ago and maintains that bearish view, citing slowing revenue growth and l margins of Chinese technology companies.
There are a myriad of weather patterns for bull markets. And they can indeed find a few patches of clear skies amid thunder and lightning. But what investors need to ask is whether the climate itself has changed. The answer may not be so sunny after all.
More from this writer and others on Bloomberg Opinion:
• You don’t need a CFA to value Chinese stocks: Matthew Brooker
• Chinese tech companies get a reprieve, not a pardon: Tim Culpan
• There’s no hiding place for bad news this time: John Authers
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
More stories like this are available at bloomberg.com/opinion