The 14% rebound in Chinese tech stocks in Hong Kong from this year’s low in October is being challenged by potentially weaker earnings from industry bellwethers such as Alibaba who is slated to announce their earnings this morning. All eyes are on Alibaba’s results which will provide insight into the impact of China’s regulatory crackdown on profit number.
Alibaba saw one of the heaviest fines of US2.8 billion by Chinese authorities in April on the back of the big tech crackdown. The stock which had tumbled as much as 49% to a record low from its February highs, has since rebounded 22% from its October lows, but is still trading at a relatively cheap price-earnings ratio of 17 times…
Will Alibaba’s results surprise on the upside, or downside?
The forthcoming earnings reports, such as Alibaba’s earnings result today, will be crucial to investors who are enjoying a rare bounce in the Hang Seng Tech Index, which saw US$1 trillion of market value eroded during China’s year-long crackdown on the tech sector.
According to SCMP, there is the risk that Alibaba’s may be affected by an economic slowdown that has weighed on consumer spending in China, where third quarter GDP growth slowed to 4.9% from 7.9% in the second quarter, as a resurgence in Covid-19 cases, flooding and power outages. One other large tech firm – Tencent Holdings in their latest earnings announcement for example, reported its slowest earnings growth in two years.
Analysts on Bloomberg are predicting a 17% fall in net income for Alibaba to 24 billion yuan (US$3.76 billion) from a year earlier.
Alibaba’s stock has rebounded 22% from an October low in Hong Kong. Even so, Alibaba still trades at 17 times one-year forward earnings, having cheapened from a two-year average of 23 times, according to Bloomberg data.