China's tech stocks are gaining a renewed appeal as the government is easing its grip on the sector after years of an intense regulatory crackdown, with renewed demand reigniting the market. This comes as a welcome relief for investors and analysts who had previously labeled the sector "uninvestable."
Alibaba Group Holding Ltd. led a 3.2% rise in the Hang Seng Tech Index (HSTECH) on Monday after China's top central banker announced that restrictions on the digital industry were coming to an end. Across the board, the stock market rose, with Hong Kong-listed Chinese shares gaining 2%.
This marks the end of pressure on a driving force of private enterprise in China. This news follows the government lifting strict restrictions on Covid-19 and providing assistance to the struggling real estate market. This shift has led to the growth of international markets, albeit at the cost of high-net-worth individuals like Jack Ma, who surrendered control of Ant Group Co. under regulatory pressure.
Chinese tech giant Alibaba could be set to outperform its peers in the upcoming year, with an improved regulatory climate and policy support for private businesses, according to Morgan Stanley analyst Gary Yu.
Alibaba's stock has been bolstered after founder Jack Ma announced his decision to give up control of Ant Group, the IPO of which was scuttled back in 2020, marking the beginning of a broad clampdown on the industry. Although the decision may delay a potential listing, it is consistent with authorities' intent to improve corporate management as part of a broader revision.
According to Goldman Sachs, the worst is over for Alibaba. The investment bank has added the Chinese tech giant to its conviction list following a two-year slide in earnings revisions, with a rebound in advertising revenues anticipated. Other prominent tech companies have also received upgrades from Goldman Sachs and Morgan Stanley strategists, primarily due to better-than-expected reopenings and improving regulatory conditions.
"For investors, this could signal the end of the regulatory pressure that followed Ant's IPO failure," commented Willer Chen, Forsyth Barr Asia's strategist. "It's good news for Alibaba's stock price and investor confidence."
The Jefferies Financial Group Inc. hiked Alibaba's stock price on Sunday, anticipating the company's performance to improve as China's economy recovers.
Nevertheless, the Chinese tech industry has undergone major changes in the past few years due to more strict regulatory oversight of data protection and online gaming. During its peak in 2020, Alibaba stock reached HK$307.40, a long way from Monday's day's close of HK$110.40. Bloomberg's analysts expect Alibaba stock to reach a target price of HK$134.85.
Besides Alibaba, there are other companies. As of Monday, Tencent's stock was trading at HK$362, about half the value it reached at its peak in 2021.
Currently, investors are optimistic about the prospects, as HSTECH has gained over 60% since the low set in October. Asia's stock market rallied Monday, setting up a technical bull market for the MSCI index.
In general, Chinese shares are showing an improvement in the overall outlook as growth-promoting measures go into effect and the country's borders reopen. Goldman forecasts the Chinese stock market to grow 15% more, thanks to attractive valuations and shifts in policy in sectors like real estate.
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