Beijing: The outlook for the biggest Chinese technology companies listed on the Hong Kong Stock Exchange has improved as some of the risks that were obscuring the sector's prospects eased from their recent earnings results.
Tencent Holdings, the company that runs WeChat, resumed profit growth in the third quarter to end a two-quarter decline. Trading turned its attention to China's reopening plans that could boost consumer spending while e-commerce leader Alibaba Group Holding reported an unexpected loss for the July to September period, betting that That the worst of the market is behind.
The recent pause in aggressive price target cuts by technical analysts may provide some respite to traders betting on a long-term recovery in the stock market.
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Tencent's buy rating rose to 91.7% in November from 90.5% a month earlier, according to Bloomberg data. Alibaba continues to represent 97.6% of the total.
According to Sean Yang Zixiao, managing director and deputy head of research at Blue Lotus Capital Group in Shenzhen, "both regulatory scrutiny and macro policies have eased, and this is the main catalyst for the Internet sector." In August, he upgraded Tencent to a Buy rating. Alibaba, the owner of the South China Morning Post, has been given hold status.
Over the past three weeks, technology stocks have been boosted by speculation that China is about to relax its COVID restrictions and US inflation has peaked. Tencent is up 43% from its October low, and Alibaba is up 30%.
Mainland investors bought Tencent shares through the Stock Connect program for a total of HK$6.4 billion (US$815.3 million) last week, according to stock exchange data.
According to data compiled by Goldman Sachs, they helped generate flows of nearly $400 million to the south for the week, bringing Hong Kong's total net purchases for the year to US$47 billion.
Tencent's third-quarter net income rose 1% from the same period last year to 39.9 billion yuan (US$5.6 billion), beating consensus estimates by 59%.
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Alibaba reported a net loss of 20.6 billion yuan, but the e-commerce site's net income rose 19% to 33.8 billion yuan, according to Chinese accounting standards.
More analysts are now convinced by Tencent's performance that profit growth will be steady in the future. In the fourth quarter, CMB International anticipates growth to accelerate to 23% due to continued business improvements and increased operational effectiveness. Goldman said last month that Tencent would resume revenue and profit growth in the coming quarter.
According to Sun Xiaolei, an analyst at CSC Financial, "Earnings for Tencent and other tech companies will improve further as the economy recovers and epidemic control [measures] are rectified."
Due to the positive outlook for monetizing its video-account business, which is projected to bring in a new source of advertising revenue, Blue Lotus' Yang prefers Tencent to Alibaba.
BOC International claims such revenue could exceed 1 billion yuan in the fourth quarter. In the third quarter, Tencent's advertising revenue decreased by 5% to 21.5 billion yuan, compared with the same period last year.
Shares of Tencent fell 1.4% to HK$287.80 on Friday, contrary to a consensus 12-month price target of HK$399.30. Alibaba's stock rose 2.2% to HK$79.95 following its earnings release. In one year, analysts forecast the stock will reach HK$135.74.
The strength in Alibaba shares indicates that investors are no longer focused on last quarter's results and are instead anticipating a potential rise in consumption as China ramps up its economy by relaxing some of the world's strictest zero-Covid rules.
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China, the world's most populous country, is set to exit zero-Covid after March, so Goldman Sachs predicted that the country's economic growth will accelerate from 3% in 2022 to 4.5% next year, along with a rise in consumption. can increase up to %.