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Tencent, Alibaba earnings reports brighten outlook for tech giants as bets on China reopening draw more funds

  • Tencent Holdings returned to profit growth in the third quarter after posting declines over the past two quarters
  • While Alibaba posted a net loss of 20.6 billion yuan, it was profitable under the Chinese accounting standard as net income rose 19 per cent

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A woman walks past a display showing stock exchange data in Shanghai. Chinese tech stocks like Alibaba and Tencent have surged in recent weeks on improving business outlook. Photo: EPA-EFE
Zhang Shidongin Shanghai

The outlook has brightened for China’s biggest technology companies trading in Hong Kong, as their latest earnings results helped remove some of the risks clouding the sector’s prospects.

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WeChat operator Tencent Holdings returned to profit growth in the third quarter to snap a two-quarter slide. While e-commerce leader Alibaba Group Holding reported an unexpected loss for the July to September period, traders have shifted their focus to China’s reopening plans that could spur consumer spending, betting that the worst is behind the market.

Traders wagering on a sustainable rebound in equities may also take some comfort from a halt in aggressive cuts in price targets by tech analysts over the past year. The buy-rating of Tencent rose to 91.7 per cent in November from 90.5 per cent a month earlier, according to Bloomberg data. The proportion for Alibaba remains unchanged at 97.6 per cent.

“There is easing on both regulatory scrutiny and macro policies and that is the main catalyst for the internet sector,” said Shawn Yang Zixiao, the deputy research head and managing director at Blue Lotus Capital Group in Shenzhen. He upgraded Tencent to a buy in August, and has a hold rating on Alibaba, the owner of the South China Morning Post.

Tencent’s third-quarter net income increased 1 per cent from a year earlier to 39.9 billion yuan. Photo: Reuters
Tencent’s third-quarter net income increased 1 per cent from a year earlier to 39.9 billion yuan. Photo: Reuters

China’s relaxation of its Covid restrictions, and expectations that US inflation may have peaked have fuelled a rally in technology stocks over the last three weeks. Tencent has climbed 43 per cent from an October low, and Alibaba has risen 30 per cent.

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Mainland investors spent a combined HK$6.4 billion (US$815.3 million) buying Tencent’s shares through the Stock Connect programme last week, according to stock exchange data. They contributed to about US$400 million in southbound inflows for the week, taking the year-to-date net purchases to US$47 billion in Hong Kong, according to data compiled by Goldman Sachs.

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