China tech stocks rebound as Cathie Wood joins bargain hunters

Chinese technology stocks rallied for a second day as bargain hunters returned, emboldened by Tencent Holdings Ltd.’s share buyback and strong results from JD.com, which drew Cathie Wood back into the market.

The Hang Seng Tech Index advanced more than 7%, adding to a 2% gain on Monday, after a five-week rout that took the gauge to the lowest level since its inception last year. Heavyweights Tencent and Alibaba Group Holding Ltd. climbed 8.8% and 9.5%, respectively.

While there’s no indication that the nation’s regulatory crackdown will ease, the absence of significant new initiatives in recent days opened the door to investors who see longer-term value in China stocks. Some are also taking a cue from technical charts that show the index plunged into oversold territory last week.

“We are seeing lots of bottom-fishing activities in the market, including strong buying of Tencent and Alibaba,” said Jackson Wong, asset management director at Amber Hill Capital Ltd. “Companies that have fallen the most and prove to have solid fundamentals will lead the rebound.”

Wood’s Ark Investment Management bought American depository receipts of JD.com on Monday after its quarterly sales beat estimates. The purchases by the thematic tech-focused global investment firm come after it had earlier this year reduced its China holdings to a negligible amount.

The e-commerce company’s revenue jumped 26% in the three months through June, while company executives said they didn’t see a major impact coming from new curbs on data collection and usage.

JD.com shares closed 15% higher on Tuesday, their biggest gain ever. 

The gain in Tencent stock Tuesday was the largest July 29 and followed its buyback of 230,000 of its own shares on Monday. 

Alibaba’s advance came after it dropped to a record low in Hong Kong on Monday. Food delivery giant Meituan climbed 14% while live-streaming platform Kuaishou Technology rose 15%, the most since February.

While investors are still concerned about regulations, earnings such as those from JD.com “have partly offset some of the worries,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “Valuations look appealing if investors want to hold for 6 months or longer.” 

Tencent is Cheaper Than Days of Trade War Doldrums: Chart

MSCI Inc., the world’s biggest index provider, shook off concerns about the “investability” of Chinese stocks, citing previous instances where markets rebounded in the aftermath. 

Regulatory compliance has weighed on China “every three, four, five years and obviously the markets have sold off at the time. But very quickly afterwards, the markets have recovered and gone through to new heights,” MSCI Inc. Chairman and Chief Executive Officer Henry Fernandez told Bloomberg Television’s Haidi Lun and Shery Ahn in an interview.

That’s a view echoed by Gabriela Santos, a global market strategist at JPMorgan Chase’s asset management unit.

“We had this in 2018, 2015 and 2011 and it’s unrelated to the economic cycle -- it’s related to China’s regulatory and reform campaigns,” she said in an interview with Bloomberg Television on Saturday. “It takes time to rebuild confidence, but three months out Chinese equities tend to trend up.” 

Some investors have taken the opportunity to buy during the selloff. Veteran fund manager Hugh Young of Aberdeen Standard Investments said earlier this month that his firm bought the dip in Tencent and kept most of its other big-tech holdings largely unchanged.

Tech stocks can shrug off govt’s crackdown: MSCI

MSCI shook off concerns about the “investability” of Chinese stocks following recent Beijing’s regulatory crackdown, citing previous instances where markets rebounded in the aftermath. (Bloomberg)