Is there a floor for Chinese tech stocks? Covid lockdowns trap bulls as price targets are slashed again

Name: Shanghai’s citywide Covid-19 lockdown spurs race to stockpile food across China
Uploaded: 2022-04-11T23:30:17.000Z
Duration: 1 min 27 s
Description: Shanghai’s citywide Covid-19 lockdown spurs race to stockpile food across China

China’s biggest tech stocks suffered another round of cuts to their upside potential last quarter as Covid-19 disrupted business activity

Analysts trimmed their 12-month target for Alibaba, Meituan by 19 to 26 per cent last quarter, despite deep revisions in 2021

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Pedestrians along the near-empty Nanjing Road shopping street outside of the impacted areas during a lockdown in Shanghai on March 31. Photo: Bloomberg

Cheryl Heng

Published: 7:30am, 12 Apr 2022Updated: 11:59am, 12 Apr 2022

Money managers are turning more bullish on Chinese technology stocks just when analysts are slashing their price targets even deeper, showing how the market is struggling to find a floor after a year of regulatory crackdowns and new Covid-19 flare-ups.

Top stocks with the heaviest weightings in the Hang Seng Tech Index saw an average 15 per cent derating in the consensus 12-month price targets last quarter, according to Bloomberg data. That is a major cutback compared with an average 2 per cent reduction during the final three months of 2021.

The price target for Alibaba Group, owner of this newspaper, was slashed by 19 per cent and 20 per cent, respectively. Daily Journal Corp, managed by Warren Buffett’s business partner Charlie Munger, halved its stake last quarter as Alibaba’s depositary shares plunged 52 per cent since its first bet a year ago.

“Many analysts are cutting their earnings projection mainly due to the relatively bearish sentiment of policies, especially in internet and real estate sectors,” Xu Lirong, chief investment officer at Franklin Templeton Sealand Fund Management, said in an interview. “They can’t find any positive signals.”

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Shanghai’s citywide Covid-19 lockdown spurs race to stockpile food across China

The divergence wrong-footed many China-focused equity funds last quarter. The 30-member Tech Index slipped 20 per cent last quarter, roiling the market on March 15 and 16 when the gauge slumped and rallied in a 40 per cent swing. April has so far proved equally volatile as Covid-19 curbs in Shanghai and its vicinity forced factories to shut down.