Chinese tech shares jumped as two of the biggest Internet giants reported sales that topped estimates, lifting some of the gloom that had beset the sector following Covid-19 lockdowns and regulatory headwinds. 

Hong Kong’s Hang Seng Tech Index gained as much as 4.9% Friday, the most in a week. E-commerce leader Alibaba Group Holding Ltd. and Baidu Inc. were among the top gainers, rallying by at least 13% each.

Both Alibaba and Baidu reported sales growth that were higher than expected, suggesting some of China’s largest businesses have found ways to wade through strict Covid restrictions in key cities. The revenue beats offer a rare but encouraging sign in an economy that’s come to a standstill due to stringent movement controls.

“We do expect the second quarter to mark the bottom in growth for our companies,” Ronald Keung, head of Asia Internet research at Goldman Sachs Group Inc. said in a Bloomberg TV interview. “Depending on the Covid policies and the government’s policies in helping to drive back consumption confidence, we do expect easier comps for China tech companies particularly as you enter into September and December quarter.”

Investors are also hoping the more than a yearlong crackdown on private enterprise is approaching an end. Policy makers have been vowing support for the industry as part of their effort to support a slumping economy.   

After slumping to a record low in mid-March, the Hang Seng Tech gauge has seen short bouts of recoveries as policy optimism attracted dip buyers. Still, it remains down more than 60% from a February 2021 peak as investors struggle to reach consensus on whether the sector is set for a sustainable rally.

“Street estimates for Chinese tech appear to be more pessimistic than reality. That coupled with the easing crackdown and stimulus measures should provide a base for these shares to rally,” said Justin Tang, head of Asian research at United First Partners in Singapore.

The Nasdaq Golden Dragon China Index of Chinese firms trading in the U.S. jumped 7.6% on Thursday. Hong Kong’s tech gauge was up 3.6% as of 11:23 a.m., while the benchmark Hang Seng Index gained 2.8%. China’s CSI 300 Index climbed 0.6%.

Still, traders remain wary that fresh virus outbreaks and Beijing’s adherence to a Covid Zero policy may roil further market upside. Any policy support may also be gradual, with Tencent Holdings Ltd. executives warning last week that it will take time for Beijing to act on promises to support the sector. 

Technology shares no longer enjoy high growth, “so there will only be range-bound trading going forward,” said Steven Leung, executive director at UOB Kay Hian.

Source:
courtesy of BLOOMBERG

by Jeanny Yu and Abhishek Vishnoi

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