(Bloomberg) — After years of regulatory crackdowns, the page has finally turned to Chinese tech stocks as demand revives in an industry once called “uninvestable.”
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Led by Alibaba Group Holding Limited, the Hang Seng Tech index surged 3.2% on Monday after a senior central bank official said the crackdown on the internet sector was coming to an end. Broader markets also rose, with the gauge of Chinese stocks listed in Hong Kong rising 2%.
The move marks the end of the strain on a key driver of China’s private sector, and comes after authorities lifted tough Covid regulations to shore up the distressed real estate sector.Ant Group to appease regulators Although it came at the expense of big players like Jack Ma, who had to give up control of the company, the shift has revitalized global markets.
Morgan Stanley analysts, including Gary Yu, wrote in a Jan. 8 note that “early easing of the regulatory environment, with government support for the private sector, after a regulatory reset in the second half of 2020. There are signs,” he said. “Given the focus on Alibaba over the past year or two, we believe Alibaba has the potential to outperform other Chinese internet stocks once the environment eases.”
Sentiment for Alibaba was boosted after Ma agreed to relinquish control of Ant, which has abandoned a 2020 IPO. The change will delay the company’s eventual listing, but is in line with the authorities’ intention to strengthen corporate governance as part of the overhaul.
Goldman Sachs Group Inc. put Alibaba on its conviction list after two years of earnings cuts, believing the “worst is behind us”. Goldman and Morgan Stanley strategists have improved their views on a number of big tech companies, citing earlier-than-expected reopenings and normalization of the regulatory environment.
Willer Cheng, senior analyst at Forsyth Barr Asia, said: “Investors can see this as a major step forward in removing the over-regulation since Ant’s failed IPO. And it’s positive for investor sentiment.”
Jefferies Financial Group raised its Hong Kong and U.S. shares in Alibaba on Sunday, saying the company will benefit from quality service and competitive pricing as China’s economy reopens.
Still, the landscape for tech companies has changed significantly in recent years, with regulatory scrutiny around data protection, online gaming, and pressure to unwind investments in other companies. It reached HKD, but closed at HKD110.40 on Monday. The consensus forecast of analysts surveyed by Bloomberg is his target price of HK$134.85.
Alibaba is not alone. Shares of Tencent Holdings Ltd. closed at HK$362 in Hong Kong on Monday, nearly halving from their peak in 2021.
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For now, investors have embraced an improved outlook, with the Hang Seng Tech gauge up more than 60% from its October low. Risk-on sentiment prevailed across Asia on Monday, putting major MSCI benchmarks on track to enter a technical bull market.
Overall, Chinese stocks are benefiting from an improved outlook as policymakers roll out pro-growth policies and borders reopen. Goldman expects Chinese stocks to rise another 15%, aided by low valuations and policy shifts in areas such as housing.
— With help from Charlotte Yang.
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