Business Maverick

Business Maverick

Alibaba leads China tech gains as breakup spurs recovery bets

Alibaba leads China tech gains as breakup spurs recovery bets
Signage displayed at the Alibaba headquarters in Hangzhou, China, on Monday, 21 February 2022. (Photo: Qilai Shen/Bloomberg)

Alibaba’s massive overhaul plan boosted Chinese tech stocks, with investors betting the sector is in for an overdue revaluation as the regulatory environment improves. 

Shares of Alibaba surged as much as 16% in Hong Kong on Wednesday, the most since November and tracking gains in its American Depositary Receipts. Among its peers, Meituan rallied more than 5% while Tencent Holdings and Baidu advanced more than 2%. 

Alibaba’s plan to split its $220-billion empire into six business units promises to yield several initial public offerings, while allowing quicker response to a rapidly-changing market environment. Analysts say the plan, which came in the wake of Jack Ma’s return to China after more than a year abroad, offers another indication that the crackdown may be done and dusted.  

“Investors could get hyped on the positive side in the short term,” said Willer Chen, senior research analyst at Forsyth Barr Asia. “Alibaba’s shakeup plan may also lead investors to think of the potential for other tech firms like Tencent to follow suit.”   

The plan comes as Chinese regulators vow to boost support for private enterprises after a years-long crackdown, which has burned investors and hurt market sentiment. Since the abrupt halt of Ant Group’s initial public offering in November 2020, foreign investors in particular deemed the sector as fraught with risks, leading to huge valuation discounts.  

Alibaba’s forward earnings multiple rates the stock cheaper than utility firm CLP Holdings and on par with China Telecom.  

Affiliates of Alibaba also rallied on Wednesday. Alibaba Health Information Technology briefly jumped more than 9%, while Alibaba Pictures Group surged 15% before paring gains. 

Chinese authorities are keen to boost growth as the world’s second-largest economy emerges from Covid restrictions. However, multiple pledges to support private enterprise for that purpose have failed to fundamentally reverse investor wariness.  

The Hang Seng Tech Index pared a 4.8% gain to trade up 3% as of 11:02am in Hong Kong. 

“The big tech platforms, which have been under pressure over the last couple of years and shedding staff, are key to helping the government boost employment,” Vey-Sern Ling, managing director at Union Bancaire Privee, said in a Bloomberg TV interview. “So from that angle, I think it is possible to assume that the government can be more supportive of these platforms going forward.” BM/DM

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