Chinese tech stocks surge on strong earnings, bargain valuations

Amid a rebound in Chinese tech stocks, investors eye enticing valuations following a robust earnings season marked by improved profits and increased buybacks. With forward-earnings estimates hitting a three-year high, analysts suggest the sector may have bottomed out, drawing investors back despite lingering concerns over regulatory pressures. While challenges persist, signs of recovery and rising shareholder returns signal a potential upswing, buoyed by favourable valuations compared to US counterparts..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Charlotte Yang.The cheap valuations for Chinese tech stocks are appealing to more investors after an earnings season with better profits, more buybacks and dividends. .___STEADY_PAYWALL___.Analysts have raised the Hang Seng Tech Index's forward-earnings estimates to a three-year high after Tencent Holdings Ltd. and others delivered better-than-expected profits. The results, coming after Beijing eased its years of regulatory crackdown, suggest that shares of Chinese tech firms may have bottomed..Read more:🔒 Michael Burry defies market trends with contrarian bets on Chinese tech giants Alibaba and JD.com.Some investors have already returned to the battered sector, driving the Hang Seng Tech Index up by 33% since the end of January. Even after that run, the gauge tracking China's major tech firms, is trading at less than 17 times forward-earnings estimates, compared with its five-year average of 26 times. The Nasdaq 100 is currently at 26 times.."Chinese tech stocks still look attractively valued in my opinion, and I think we are far from reaching the top," said Jian Shi Cortesi, a fund manager at GAM Investment Management. "Many Chinese tech companies have been growing earnings in the past few quarters, and investors are finally paying attention.".The China tech index is still more than 60% off its 2021 peak. Its steep decline drove valuations to multiyear lows, but concerns over Beijing's policies and waning economic growth had kept investors away earlier. In recent months, policymakers have increasingly put in more support for the economy, and said tech companies will help drive innovation..Tencent is on track for its longest streak of monthly share-price gains since 2018. Last week, the company reported a 62% surge in quarterly profit as ad sales through its TikTok-style video service doubled. Analysts have raised its average price target by 9% since the results, expecting a gaming business turnaround this quarter to drive the stock higher..Rival e-commerce operator JD.com Inc. and internet search leader Baidu Inc. also delivered better-than-expected earnings. GAM Investment's Cortesi cited better cost control, "more rational competition" and investment discipline as reasons for the strong results, adding that rising shareholder returns are also positive for the stocks..Shareholders are benefiting from the better earnings. Buybacks by Tencent, Alibaba Group Holding Ltd., JD.com, Meituan and Baidu may reach a record high total of $28 billion in 2024, up from less than $20 billion in 2023, according to Bloomberg Intelligence. Dividends are projected to rise to a combined $10 billion from $8.3 billion, BI estimates..Cautious Chinese consumers and competition from new entrants remain challenges for tech firms, as seen in the disappointing set of numbers from Alibaba. But there are signs that excessive pessimism is waning, with Alibaba's three-month volatility skew dropping to near its lowest level since 2021, indicating reduced investor demand for downside protections..Results from e-commerce operator PDD Holdings Inc. and leading game firm NetEase Inc. later this week will give further insight into the consumption recovery. The Chinese government may provide further catalysts with support measures, though investors remain on guard after previous regulatory crackdowns and the latest trade tensions with the US and European Union..There is further room for gains in tech stocks despite the "geopolitical noises" that weigh on China equities, according to Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management. "I think the rally may still have legs given their compelling valuation versus the US tech names, light positioning from global investors and improving fundamentals.".Top Tech Stories.Tencent suspended Dungeon & Fighter Mobile within an hour of its Chinese debut because of unspecified server glitches, suggesting players flooded the online platform for one of 2024's most highly anticipated titles.Microsoft Corp. Chief Executive Officer Satya Nadella is betting a new generation of computers with specialized artificial intelligence chips and faster performance will revive the long-running rivalry between Windows PCs and Apple Inc.'s Mac.Samsung Electronics Co. is replacing the head of its semiconductor arm, appointing a longtime memory chip veteran to spearhead efforts to catch up with SK Hynix Inc. in the booming AI arena..Read also:.🔒 Michael Burry's Scion doubles down on Chinese tech amid market rebound🔒 The Magnificent 7: Tech titans propel S&P 500 to record highsGood news for Naspers/Prosus – Chinese market Bears turn Bullish on bargain valuations.© 2024 Bloomberg L.P.

Chinese tech stocks surge on strong earnings, bargain valuations

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