Despite a spate of earnings beats, investors are becoming increasingly concerned about China’s economic development, which is causing the dizzying rally in China’s technology companies to quickly lose steam.
The Nasdaq Golden Dragon China Index had approached a bear market as of Friday, having lost 16% of its value since reaching a high in January, with its 63 constituents together suffering a loss of $190 billion in market value during the same time period. Even after the company reported quarterly profits that were higher than anticipated, Alibaba Group Holding Ltd. was the leader of the slide.
After a spike that was fuelled by the reversal of harsh Covid limits, long-standing concerns have returned to the forefront, which contributed to the losses. The losses reflect the larger caution around Chinese assets. In the wake of the disappearance of a prominent tech dealmaker, regulatory issues have reemerged, and relations between the United States and China have intensified as a result of the shooting down of an alleged spy balloon.
“Suddenly there are just so many factors to worry about,” said Paul Pong, managing director at Pegasus Fund Managers Ltd. “Cost control did help their past earnings, but margin-eroding price wars are intensifying in China,” he said, adding that highly volatile names are under pressure from global risks such as US rate hikes.
On Monday, the Nasdaq Golden Dragon measure had a rise of 1.3%, which was higher than the advances seen in the market as a whole. The recent deterioration in sentiment should be viewed in the context of a surge of more than 80 percent from its nadir in October, when China’s economy was reopened and optimism grew that a crackdown on the sector was drawing to a close. This jump should help put the recent drop in sentiment into perspective.
Even robust earnings from corporations have not been enough to ease the anxieties of investors. Baidu Inc., Alibaba, and Vipshop Holdings Ltd. are among the five Chinese technology businesses that have posted sales or profit beats after reporting their quarterly results. The nine Chinese technology companies that have published their quarterly results are listed below.
There are a number of companies that are expected to publish their financial results by the month’s end, including JD.com Inc., Bilibili Inc., and Trip.com Group Ltd.
When the United States shot down a China balloon that it suspected was being used for spying, geopolitical risks have risen to the top of the list of concerns of investors. In addition, the United States Secretary of State Antony Blinken stated that Beijing was contemplating supplying Russia with weaponry for its war in Ukraine, a move that is expected to further inflame tensions between the two countries.
Add to it the sudden disappearance of dealmaker Bao Fan earlier this month, which has sent chills through the country’s business elite and has prompted fresh worries about whether President Xi Jinping’s campaign on the private sector has reached its natural conclusion.
Said Marvin Chen, an analyst at Bloomberg Intelligence-
“Although the earnings season is off to a positive start, with beats from Alibaba and Baidu, markets look to be pricing in more risk as geopolitical concerns, higher Fed rates, and industry competition impact valuations”
There are other elements that are unique to the stock that are at play. According to a note that was written by analysts at Morgan Stanley last week, including Gary Yu, it was suggested that Alibaba’s possible investments in new business opportunities would reduce the efficacy of the company’s efforts to control costs.
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According to Esme Pau, an analyst at Macquarie Capital Ltd., Baidu’s target to break even in its AI cloud business will occur later than was originally anticipated, and the company’s ChatGPT-style bot will increase the company’s near-term costs in the absence of a clear strategy by the company to turn a profit.
A number of investors share your lack of enthusiasm. With the sluggish growth prognosis and the increasing likelihood of regulatory crackdowns, Jennison Associates has no intention of regaining its prior level of investment in large Chinese technology companies.
Said Raj Shant, portfolio specialist at Jennison-
“A lot of these companies are very dependent, and it may be even at the whim, of Chinese government policy makers”
“And it’s hard to say that anybody really knows what those policy makers are actually thinking and what their priorities are.”
Chart of the Day for Technology
Nvidia Corp. is a clear winner in this year’s artificial intelligence frenzy, with its stock extending a strong year-to-date rally to 62% after the chip company gave a bullish revenue outlook for the current quarter. This shows that Nvidia Corp.
is a clear winner in this year’s artificial intelligence frenzy. After the announcement on Wednesday, around 30 brokerages have increased their price goals, and according to statistics provided by Bloomberg, the consensus price target has increased by approximately 25% to $249.18 over the course of the past month.
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