After a Dismal Year, China Tech Stocks Perk Up
November 22 2018 - 11:34PM
Dow Jones News
By Steven Russolillo
Some of the largest Chinese technology stocks, among the most
battered names in global equities this year, have shown signs of
life this month just as U.S. tech giants have faltered.
What's Happening
Chinese internet giant Tencent Holdings Ltd., e-commerce titan
Alibaba Group Holding Ltd. and smartphone maker Xiaomi Corp. have
rallied in November. That is a contrast to the so-called FAANGs in
the U.S. These five large tech stocks-- Facebook Inc., Apple Inc.,
Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc.--are
all down for the month and have shed hundreds of billions of
dollars worth of market value since the beginning of October.
Software powerhouse Microsoft Corp., the second biggest U.S.
company by market value, has also fallen.
After the clobbering that Chinese tech stocks took for much of
the year, investors say their beaten-down valuations make them look
compelling.
Tencent, which posted better-than-expected earnings last week,
is up 11% this month through Thursday, on track for its biggest
monthly gain since January. Alibaba's 5% gain is pacing its best
monthly performance since May. Xiaomi is up 18% in November.
Earlier this week, the company said it turned a profit in the third
quarter thanks to rising sales of higher-end smartphones.
What It Means
To some extent, the U.S. companies are merely catching up with
their Asian counterparts, as investors reassess lofty valuations
and punchy growth expectations. "Some of the tech names in the U.S.
had been priced for perfection. In China, some of these names had
been priced for disaster," said Thomas Poullaouec, head of
multiasset solutions for Asia-Pacific at T. Rowe Price.
And perspective helps. In 2018, most big U.S. tech stocks have
fared better than their Chinese rivals. Apple, Amazon.com and
Netflix remain in positive territory for the year. Alphabet is
roughly flat, while Facebook is deep in the red.
By comparison, Tencent has lost more than a quarter of its
market value so far in 2018, Alibaba is down 13% year-to-date and
Xiaomi is down 15% since its July IPO.
Not all Chinese tech stocks have rallied in November. Internet
search giant Baidu Inc. is down 3.2% this month and has fallen more
than 20% for the year. E-commerce retailer JD.com Inc. hit an
all-time low earlier this week after third-quarter revenue missed
expectations. The company is also grappling with uncertainty over
Chief Executive Liu Qiangdong, who was arrested in Minneapolis
earlier this year on the suspicion of rape. JD has lost more than
half its market value this year.
Andrew Swan, head of Asian and global emerging markets equities
at BlackRock, said he remains cautious on Chinese tech stocks due
to slower earnings growth and increased regulatory scrutiny.
"Expectations were too high for these companies," he said. "For a
sector which has grown over 30% for numerous years, we're now in an
environment where there is no earnings growth. I think that
continues for some time."
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
November 22, 2018 23:19 ET (04:19 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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