It has been a tough year for China's tech stocks. Billions have been wiped off the value of the country's internet giants, and companies have posted their lowest growth rates on record.
The world's second-largest economy has been hurt by a Covid resurgence in China which the government countered with a strict "zero- Covid" policy. Chinese internet firms have seen a decrease in spending due to the economic downturn.
With regard to Chinese tech stocks, investors are cautious and analysts expect regulation to be more predictable and growth to accelerate There is uncertainty around the Chinese economy.
There are signs that China may be considering opening its economy again.
In a research note last month, analysts at investment bank Jeffries said they were positive on the outlook for the internet sector in the years to come.
The zero-covid policy was adopted by China after the Pandemic of 2020. The policy has had a negative effect on the economy.
Electric vehicle makers saw lackluster sales as consumer sentiment took a hit.
There are signs that the policy may be changing.
The Omicron variant of the coronaviruses is less severe than previous versions, a shift in tone from the government ahead of an announcement on relaxing Covid control measures.
Some people with Covid can be isolated at home rather than at government facilities, and there is no need for a virus test for those travelling across the country, as of December 7th.
In my view, the biggest challenge faced by tech firms next year is probably still COVID and, as a result, the weak and uncertain economic outlook.
The amount of the rebound for China tech could be determined by how the exit from zero- Covid is handled.
According to the senior lecturer in Chinese and East Asian business at King's College London, the prospects of a tech rebound next year depends on the extent to which the economy recovers.
The current extremely suppressed level of consumption, largely due to COVID restrictions and also the lack of confidence among consumers, is likely to lead to a tech rebound.
As the Chinese economy reopens, analysts expect growth for Chinese tech names to accelerate, but not as fast as in the past.
The fourth quarter of this year is expected to see a 2% year-on-year increase in revenue, followed by a 4% increase in the March quarter and a 12% increase in the June quarter.
In the December quarter, revenue is expected to grow by just 1%, followed by 7% in the first quarter of 2020 and 10.5% in the second quarter.
Online shopping is in a good spot to embrace the recovery story before advertising and entertainment, according to a note. It could help companies likeAlibaba andJD.com.
According to analysts at the investment bank, they expect online advertising growth to rebound in 2023 but warned that growth will be dependent on the macro environment.
The tech sector was hit by China's strict Covid policy this year, but investors were already spooked by Beijing's regulatory tightening.
Giant companies have posted slower growth rates and their stock prices have fallen.
The Hang Seng tech index in Hong Kong has fallen more than 50% since the beginning of the year.
Over the past two years, Beijing has introduced a range of policies from new antiturst rules to data protection laws.
Firms that fell foul of antitrust rules were punished with large fines as Beijing moved to rein in the power of its internet giants.
The gaming sector has suffered a lot. The amount of time children under the age of 18 could play online was capped by regulators in the year 2021.
The investors were not aware of China's regulatory assault on its tech sector.
Some of the regulatory pressure may be decreasing. China's two biggest online gaming companies will benefit from the restart of the approval of games this year. The government has made a number of pledges to support the technology sector.
Economic growth is Beijing's priority this year. Beijing has realized that it's a bad idea to scare markets and undermine business confidence and that's the reason the governance is over.
Recent attempts to relax Covid measures have been seen. Regulations will be here for a long time. The focus has shifted to a more predictable approach.
The impact of regulation and a slowing economy is changing how Chinese technology giants run their companies.
Chinese tech firms have been cutting costs in order to increase profitability.
Tencent runs China's most popular messaging service, as well as investing in other firms.
Some of China's largest companies have recently been sold by the company. As scrutiny on the tech sector increased, Tencent sold off some of their investments.
Cloud computing and an international push are some of the areas that Tencent is focusing on.
I’m more bullish than I was 6 months ago simply because I think the prices have fallen much further than future earnings estimates have had to be revised downward.
The bulk of its revenue comes from its China retail business, which is why it is trying to sell more cloud computing products.
Some businesses related to tech firms may be separated from one another.
After its initial public offering was pulled in November 2020, China's central bank ordered the financial holding company to become a fintech. The company said earlier this year that it is looking into the possibility of having its mobile payments service fall under a separate company.
Sun from King's College said that the business logic these firms need to follow has changed as a result of the raids.
They have to scale back to focus on their main business lines.
Some investors are positive about China's tech industry next year, but they are cautious.
There is uncertainty about the path of China's exit from its zero- Covid policy. Several investment banks have cut their China growth forecasts over the past few months due to a slump in exports and a drag from the real estate sector.
According to Sun, the biggest challenge faced by tech firms next year is likely still carbon dioxide.
American investors can't buy Chinese tech stocks because they're being nationalized, according to a wealth manager at a Hong Kong-based asset management company.
He said that the risks are not likely.
He said that he doesn't think many of those scenarios are realistic.
A number of analysts and investors told CNBC that the plunge in Chinese technology stocks has left some of them looking cheap or overvalued.
The stock prices of the Chinese technology companies have fallen more quickly than analysts think they will.
Dennison said that he is more bullish than he was six months ago because he thinks the prices have fallen further than future earnings estimates have had to be revised downward.
The forward price-to- earnings is a measure of a company's earnings relative to its stock price. A high P/E is indicative of a stock's price being higher than its earnings.
The average valuation of China internet names is more than double that of global peers, according to a report. The market is expected to revisit the sector in the year 2023.
Analysts still think there's upside for Chinese tech stocks.
On average, analysts have a price target of $134.40 on the U.S.-listed shares ofAlibaba, which is roughly 50% upside from Monday's close. The analysts have an average price target of 386.91 Hong Kong dollars, which is about 20% upside from Monday's close.
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