Some cite April 29 as the turning point, the day the Politburo called on regulators to align and support the platform economy — a term that refers to internet companies that offer multiple services. But indices that have weighted heavily toward Chinese technology names, such as the MSCI China index, have largely moved sideways since then. The CSI 300 index, which tracks only China-listed stocks and leans more towards financials, manufacturing and consumer staples, has risen, albeit only slightly.
The excitement arose earlier this month after the Wall Street Journal reported that Chinese regulators were preparing to open their investigation into taxi company Didi Global Inc. and make the most important apps available for download again. The stock rose as much as 68% in one day. Didi, which, like Uber Technologies Inc. and Lyft Inc. Relying on its Android and iOS software to connect with customers and drivers, had 26 of its apps shut down when Beijing decided last year that the company’s data-sharing process needed a closer look.
As predicted, that national security review resulted in Didi seeking an expulsion from New York not long after his debut. Any investor who was surprised by recent news that restrictions on his app were about to be lifted simply wasn’t paying attention. That’s what the company said literally when it pleaded with shareholders last month to pass a delisting motion.
“The company has concluded that it must complete the cybersecurity assessment and rectification to resume normal operations…and that if it is not removed from the NYSE, it will not be able to complete the cybersecurity assessment and rectification.”
On May 23, investors heeded that call and the shares will no longer be traded on the New York Stock Exchange. Beijing ending the app store ban was the next logical step. Ironically, the stock barely moved when the actual vote was announced, the real catalyst for officials to calm down. It is clear that optimists – who gathered around the news of an easing – and pessimists – who ignored the previous vote of shareholders – both took something away from this development.
Then there’s Ant Group Co., the financial subsidiary of Alibaba Group Holding Ltd. whose IPO was scrapped at the last minute following Jack Ma’s now infamous October 2020 speech criticizing regulators.
A revival of Ant’s public listing would be the closest thing to forgiveness for Ma and Alibaba, and would rightly be seen as a signal from Beijing that the crackdown is over. Bloomberg News reported last week that the China Securities Regulatory Commission was considering reviving a list, though both the CSRC and Ant later said they have no such plans. Even the carefully worded responses, a kind of non-denominational denial, can be taken by bulls and bears as the sign they seek. Alibaba shares rose a whopping 4.4% after the Bloomberg News story, but slumped again after statements from the CSRC and Ant.
Alibaba gave its own signal to the market last month when it declined to give its usual outlook for the year, a move that speaks of the lack of clarity stemming from Covid lockdowns, supply chains and global economic problems. But regulatory ambiguity is certainly one of the factors that management cannot model accurately. For example, executives said the company is likely to benefit from the stimulus measures announced by the government, while also reiterating its aim to help small and medium-sized businesses, which could affect profit margins.
Others suffer too. Online content provider Bilibili Inc. jumped after Chinese news channel Caixin reported it was cutting jobs in its gaming and live streaming divisions, but collapsed a few days later after it lost revenue. DouYu International Holdings Ltd., another live streaming provider, has fallen nearly 30% since that Politburo meeting, after noting that stricter regulations will continue to weigh on revenues.
The plethora of positive signals seems enough to prompt people to speculate that the bottom has been reached, and Beijing may even boost investor confidence ahead of this year’s 20th Communist Party Congress. That’s wishful thinking.
As one clear fund manager once told me, “You don’t move to Hawaii for the weather, you move there for the climate.” The point is that cloud or sunshine on a single day is a short-term distraction from the long-term thesis. China remains one of the world’s largest consumer economies, even with its regulatory and economic challenges, but its heady growth days are undoubtedly over.
The argument that now is the time to go back to Chinese technology is largely bolstered by quantitative analysis. According to a recent strategy paper by Bernstein’s Rupal Agarwal, Robin Zhu and Shivam Gupta, the sector is trading at a 10% discount to the broader market, compared to a historic premium of 35%. They calculate that withdrawals have already reached 37%, surpassing the 35% seen in the 2018 down cycle. “While risks remain, we think there are reasons to believe a turning point has been reached.” , they wrote on June 10.
But there is a downside. “From a fundamental perspective, I see no reason to go bullish just yet,” DZ Bank AG analyst Manuel Muehl said in a June 7 email, Bloomberg News reported. He was the first of more than 70 analysts to provide sales ratings on Alibaba and fellow e-commerce company JD.com Inc. a year ago.
There are numerous weather patterns for market bulls. And they can indeed find some patches of clear sky amid thunder and lightning. But what investors need to ask themselves is whether the climate itself has changed. The answer may not be so sunny after all.
More from this writer and others at Bloomberg Opinion:
• You don’t need a CFA to value Chinese stocks: Matthew Brooker
• Chinese tech companies get a reprieve, not a pardon: Tim Culpan
• There’s no hiding from the bad news this time: John Authers
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist on technology in Asia. Before that, he was a technology reporter for Bloomberg News.
More stories like this are available at bloomberg.com/opinion