Big Tech is leading the way today in Hong Kong, with stocks such as Alibaba Group Holding (BABA) and HK:9988 and Bilibili (BILI) and HK:9626 notching double-digit gains. It is clear that investors feel Beijing's crackdown on the tech sector is nearing or at an end.
Video-streaming and short-video sharing site Bilibili led the way in the Hang Seng Tech Index, with a massive 19.6% jump. The online health clinic Ali Health (ALBBY) and HK:0241 advanced 11.5%, while parent Alibaba Group Holding rose 10.1%.
There's been movement on a number of fronts that suggest Beijing's administrative tech crackdown is waning. The issuance of new videogame licenses, a decline in the number of antimonopoly cases being investigated, and a prospective return to business for companies that have been caught in the crossfire are among the motives for today's rise. Both Monday and Wednesday have now been strong for Chinese tech in Hong Kong.
The moves may even be good news for ride-hailing specialist DiDi Global (DIDI) , the company arguably hurt the most by China's tech crackdown. The Chinese authorities are already allowing the apps of freight consolidator Full Truck Alliance (YMM) to sign up new customers, as of this week. They plan to allow both DiDi and job site Kanzhun (BZ) to also resume attracting new customers, according to The Wall Street Journal.
The three companies were penalized last July shortly after going public in the United States. The Cyberspace Administration of China ordered their apps removed from Chinese app stores and stopped them registering new users for alleged failures in the way they collect and store personal information.
Concluding those investigations, with the inevitable fines, would go a long way in restoring morale to the battered tech sector. Chinese tech was even called "uninvestable" amid the regulatory uncertainty and the threat, still unresolved, that all Chinese companies may be forcibly delisted from Wall Street. DIDI shares almost doubled between Friday's close and Monday's open on Wall Street, but at their current US$2.24 price are still 84% down from their debut at US$14.
The optimists latched onto the good news in Hong Kong trading for Wednesday.
The data-center operator GDS Holdings (GDS) and HK:9698 32 was the second-best performer behind Bilibili, up 11.8%. It stands to gain from a tech-sector revival, having developed 96 data centers to serve China's main economic hubs around Shanghai, Beijing and Guangzhou.
Wednesday's rally is a little different from the strong gains in Chinese tech names on Monday. The Hang Seng Tech Index, up 4.8% on Wednesday, also moved strongly ahead on Monday, adding 4.6%. But it was consumer-goods companies such as grocery-delivery app Meituan (MPNGF) and HK:3690 and electric-vehicle makers such as Li Auto (LI) and HK:2015 that led the way on Monday, due to the relaxation of lockdown rules in Shanghai and Beijing. Tuesday was a day of consolidation with tech stocks little changed.
The Hang Seng Tech Index has now advanced 19.4% in the last two weeks, though it remains down 15.0% for the year, and is still down by half (54.9% to be exact) from its February 2021 peaks. So the rally could still have legs if Beijing is concerned enough about growth to let tech companies operate more freely.
Wednesday also saw strong performance from Alibaba rivals such as Tencent Holdings (TCTZF) and HK:0700, up 6.5%, and JD.com (JD) , up 6.4%. Web-browser operator Baidu (BIDU) and HK:9888 rose 6.1%.
The Chinese Communist Party has grown concerned enough about economic growth to back off the harsher measures designed, in better times, to reel in excessive salaries, curb the "disorderly" expansion of capital, and even redistribute wealth in the quest for "common prosperity." Led by President Xi Jinping, the initiatives began to weigh on the private sector, led investors to dump stocks, and sapped any entrepreneurial spirit.
Business is suddenly back in fashion in Beijing. The country will struggle mightily to avoid a contraction in Q2, and its official target of growth of "around 5.5%" this year appears far-fetched. The private sector is being harnessed and promised with support as a result.
Chinese regulators issued licenses for 60 new videogames, helping drive Wednesday's warm sentiment toward the tech sector. The National Press and Public Administration published its "June list" on its Web site on Tuesday, which focused on smaller games and did not include any foreign titles or any from heavyweights Tencent and NetEase (NTES) and HK:9999. But NetEase saw its stock rise 5.7% on Wednesday, a purer videogame play than Tencent, which also operates the super app WeChat.
The new titles represent a thaw in the gaming sector, explaining the stock gains for all game designers. After a freeze of nine months, the administration issued its first new licenses in April, with 45 new games. It did not publish a list in May, without citing any reason why. The videogame industry has come under heavy pressure both to limit the hours that children can play and to control the content of games deemed violent or not virtuous.
The names that led the way on Monday did still advance today. Electric-sedan maker XPeng (XPEV) and HK:9868, with a 6.1% move on Wednesday, caught up to its peer the electric-SUV maker Li Auto, which put on 4.1% for today. Meituan moved ahead 4.6%.
China's antitrust watchdog released figures on Wednesday showing that it investigated 175 monopoly cases in 2021, up 61.5% from the year before. The State Administration for Market Regulation also issued a total of C¥23.6 billion (US$3.5 billion) in fines. The annual report hints that the toughest action may have already occurred.
Alibaba, for instance, was slapped with a record C¥18.2 billion (US$2.7 billion) fine, while Meituan was penalized to the tune of C¥3.4 billion (US$508 million). Both companies were told to stop requiring merchants to sign deals requiring them to sell exclusively through their platform at the expense of their competitors.
The number of antitrust cases has been falling recently, indicating that the regulators feel they have stamped out the most egregious behavior. Stocks in the companies that get fined often rally once their penalty becomes clear.
Will this Big Tech rally continue? Alibaba shares are still down 47.7% in the last 12 months, and are one-third the value of their 2020 peak. It looks likely they will continue to advance. But the main threats - a resurgence of Covid, renewed lockdowns in Chinese cities, further regulatory attacks - are not based in any way on company fundamentals. So it will be a sentiment call rather than business analysis that must guide investors from here.