China’s optimism grows after $ 500 billion rout: Tech Watch
(Bloomberg) – Beaten Chinese tech stocks are getting a new lease of life and some strategists are calling for a turn.
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After giving in under the weight of government crackdowns for much of the year, the Nasdaq Golden Dragon China Index rose 16% in just over a month. It’s still down 45% since it hit a record high in February, a move that wiped out $ 500 billion in market value.
“The worst is probably behind us in terms of the intensity of regulation and the corresponding shocks in the market,” Goldman Sachs Group Inc. strategist Kinger Lau wrote in a note after conversations with clients.
Notably, a leading regulator said last month that it plans to make significant progress in cracking down on fintech companies before the end of the year. And a term for President Xi Jinping to potentially rule for life can mean political continuity and fewer regulatory surprises.
The Golden Dragon gauge climbed 5.1% on Thursday alone, helped by a plethora of positive news that may have boosted investor confidence in the stock group. It gained up to 0.7% on Friday. Alibaba Group Holding Ltd. and JD.com’s Singles’ Day shopping festival saw record sales, while Didi Global Inc. was preparing to relaunch its apps in China by the end of the year, which the rideshare company called hearsay.
Groups like UBS Group AG and BlackRock Inc. agree that the worst is probably over when it comes to the Chinese government’s crackdown.
“The weakening regulatory headwinds should also allow profits – particularly in Internet sectors – to rebound,” UBS strategist Niall MacLeod wrote in a note Thursday.
In addition, optimism is growing about Sino-US relations with Joe Biden and Xi Jinping who are expected to meet virtually on Monday.
Still, tech-driven stocks still have a way to go to recover from this year’s rout. Alibaba and Baidu Inc. are by far the worst performers on the NYFANG + index, both slipping over 20%, compared to a 24% jump in the elite tech index. Both are trading at a discount of over 30% off analysts’ average price targets, implying that a recovery is expected over the next 12 months.
Away from China, a corner of the tech industry that was one of the biggest winners in the lockdown era is emerging.
Cloud computing software maker Cloudfare Inc., which helps secure websites and make websites load faster, has grown more than 160% this year, more than six times the gain of the Nasdaq 100. Datadog Inc., a another software maker, has seen its inventory nearly double, as its industry’s gains appear poised to continue even as the pandemic nears end.
The two are part of a group of companies that are thriving as workloads continue to migrate from internal data centers to the cloud as more employees work from home. The rising stocks are in stark contrast to last year’s big winners like Zoom Video Communications Inc. and Peloton Interactive Inc. whose stocks have fallen this year as growth slows.
While supply chain issues and rising inflation grabbed the headlines this earnings season, cloud companies were among the most notable winners. Amazon.com Inc. and Microsoft Corp. were both supported by their cloud divisions, which grew outpacing many of their other businesses in the quarter ended September.
“It’s a mega trend,” said Eric Jackson, founder of EMJ Capital. “I don’t know how you couldn’t be optimistic about this. “
And their steep rallies may have more room to run. Analysts’ targets predict that Cloudflare and Datadog could gain an additional 13% and 9.8%, respectively, over the next 12 months.
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Key iPhone assembler Hon Hai Precision Industry Co. posted profits above analysts’ estimates on strong demand for new versions of the Apple Inc. handset, but warned that sales would decline this quarter due to persistent shortages of fleas.
Lordstown Motors shares fell 12% in post-market trading after the electric vehicle startup said commercial production and deliveries of its Endurance pickup would begin in the third quarter of 2022, citing component shortages and of materials, as well as other supply chain challenges.
Chinese online e-commerce company JD.com said consumers spent a record 349.1 billion yuan ($ 54.7 billion) in orders during this year’s Singles Day shopping festival. , generating a 5.2% share price increase in Hong Kong.
Alibaba’s shopping festival posted record sales of 540.3 billion yuan, giving China’s largest e-commerce company a much-needed boost after a year of increased regulatory scrutiny.
(Update the stock price throughout.)
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