Alibaba leads tech gains in China as regulatory issues ease further

(Bloomberg) – The page has finally turned for Chinese tech stocks, as the end of a years-long regulatory crackdown revives demand for an industry once dubbed “uninvestable.”

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The Hang Seng Tech index jumped 3.2% on Monday, led by Alibaba Group Holding Ltd., after a senior central bank official said a crackdown on the internet sector was coming to an end. The broader market also rose, with a gauge of Hong Kong-listed Chinese stocks up 2%.

The move signals an end to pressure on a key driver of private enterprise in China, and comes after authorities removed tough Covid restrictions and propped up the struggling property sector. The shift has boosted global markets, although it comes at the expense of tycoons such as Jack Ma, who had to cede control of Ant Group Co. to appease regulators.

“After the regulatory reset at the end of 2020, we are seeing the first signs of an easing of the regulatory environment with government support for the private sector,” wrote Morgan Stanley analysts, including Gary Yu, in a note from the January 8. “Over the past 1-2 years, Alibaba has been in focus, so we believe it could outperform other Chinese internet stocks as the environment eases.”

Sentiment toward Alibaba grew after Ma agreed to relinquish controlling rights to Ant, whose scuttled IPO in 2020 marked the start of a sweeping crackdown on the industry. Although the change would delay a possible listing of the company, it is in line with the authorities’ intention to improve corporate governance as part of an overhaul.

Goldman Sachs Group Inc. added Alibaba to its list of condemnations, saying “the worst is behind” after two years of earnings downgrades, with a recovery in ad revenue expected to follow. Goldman and Morgan Stanley strategists improved their views on a slew of big tech names, citing a faster-than-expected reopening and a normalizing regulatory environment.

“Investors could view this as a major step in removing regulatory overhang since Ant’s failed IPO,” said Willer Chen, principal analyst at Forsyth Barr Asia Ltd. “It’s positive for Alibaba shares and investor sentiment.”

Jefferies Financial Group Inc. lifted Alibaba’s stock prices in Hong Kong and the United States on Sunday, saying the company will benefit from quality service and competitive pricing as China’s economy reopens.

Yet the landscape for tech companies has changed significantly in recent years with greater regulatory scrutiny of data protection, online gaming as well as a push to untangle investments in other companies. At its peak in 2020, shares of Alibaba hit HK$307.40, down from Monday’s closing price of HK$110.40. The consensus expectation of analysts polled by Bloomberg is a target price of HK$134.85.

Alibaba is not alone. Shares of Tencent Holdings Ltd. closed at HK$362 in Hong Kong on Monday, down nearly half from its 2021 high.

Billionaire Jack Ma hands over control of ants as part of company overhaul (1)

For now, investors are embracing the improving outlook, with the Hang Seng Tech gauge up more than 60% from an October low. Risk sentiment prevailed across Asia on Monday, putting a key MSCI benchmark on track to enter a technical bull market.

Overall, Chinese equities are benefiting from an improving outlook as policymakers roll out pro-growth policies and the country’s borders reopen. Goldman expects Chinese stocks to gain another 15%, helped by low valuations and political pivots in areas such as housing.

–With the help of Charlotte Yang.

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