JPMorgan’s calls in China show market timing is tough
(Bloomberg) — Predicting the returns of Chinese tech stocks is harder than ever in a time of shifting government policy, rising interest rates and slowing economies.
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Take JPMorgan Chase & Co.’s Alex Yao. He downgraded 28 Chinese internet stocks in March, calling the industry “uninvestable” — just ahead of an epic rally. It then moved to modernize the sector in mid-May and, while indices have been higher since then, the largest company, Tencent Holdings Ltd., is down almost 20%. Alibaba Group Holding Ltd. is a hair’s breadth away from erasing all of the gains since Yao improved the stock.
An investor following Yao’s recommendations on Tencent would have lost 48% over the past year, the worst among analysts following the stock, according to data compiled by Bloomberg. Still, Yao has plenty of company. The strategies of many analysts on the title would have generated losses of more than 30%. Yao and JPMorgan did not respond to requests for comment.
“Our feeling is that it will be very difficult to choose the right time to move into China,” said Tom Masi, a New York-based portfolio manager at GW&K Investment Management. “What we are currently experiencing are the repercussions of the slowdown in the Covid lockdown, greater uncertainty in the housing market, growing pressure from unemployment.
Chinese internet stocks have seen wild swings, even by the standards of the volatile tech sector.
The Nasdaq Golden Dragon China index of US-listed companies lost three-quarters of its value between a high in February 2021 and a low in March this year, crushed by a government regulatory crackdown. Then, China’s sweeping promise that the worst of the review was over prompted a nearly 60% jump in the benchmark. But that rally petered out in late June amid growing concerns that companies will be delisted from U.S. stock exchanges and earnings will be dampened by the economic downturn.
Tencent fell to its lowest since 2018 on Tuesday after failing to secure new online gaming licenses.
Yao’s hit appeal in March should not have used the word “uninvestable”, people familiar with the matter said in May. JPMorgan staff responsible for verifying the bank’s research asked that it be removed from the 28 reports Yao and his team wrote before they were published, the sources said, but he escaped four of them due to an editorial error.
For now, the majority of analysts are still sticking to their optimism. Tencent has the most buy recommendations of any Asian company, while Alibaba and delivery giant Meituan also topped the list, according to data compiled by Bloomberg. Analysts expect the three stocks to rise at least 38% over the next 12 months.
The August earnings season will provide a reality check. Analysts are predicting a weak quarter for Chinese tech companies as the April-June period was interrupted by nationwide shutdowns of major cities. Alibaba is expected to report its first-ever quarterly revenue decline this week.
“Confidence will have to grow in the willingness of the state to let these companies thrive,” said David Waddell, CEO and chief investment strategist at Waddell & Associates. “Confidence will have to grow for Chinese blockages to ease. Confidence will have to grow that recessions in the developed world will not sink the developing world.
Technical table of the day
Tech companies have cut more than 60,000 jobs this year, according to Layoffs.fyi, which tracks both publicly traded and private companies. On Monday, Oracle Corp. laid off employees in marketing and its U.S. customer experience division, though the extent of the cuts could not immediately be determined. Barclays Plc analyst Raimo Lenschow said “management is taking a proactive approach” as economic headwinds hit the software giant. The stock has fallen 11% this year, compared to the Nasdaq 100’s 21% drop.
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Uber Technologies Inc. posted revenue above analysts’ estimates, boosted by resilient demand from customers who continued to hail rides and order takeout despite rising inflation. Shares jumped as much as 16% on Tuesday.
Oracle cut jobs in marketing and the U.S. customer experience division, signaling a decline in customer analytics and advertising services.
Pinterest Inc. jumped after reporting sales and resilient user numbers and Elliott Investment Management confirmed a major stake, saying it approved of the company’s leadership. Shares gained about 18% on Tuesday.
Activision Blizzard Inc., the largest video game publisher in the United States, posted revenue above analysts’ estimates, but adjusted sales fell 15% from a year ago due to a launch smooth ride from Call of Duty last fall and a slow year for the gaming industry as a whole.
When the U.S. Congress passed a landmark $52 billion federal program to boost national chipmaking capabilities, it included an important caveat: Companies receiving the funding must promise not to ramp up production of advanced chips. in China.
Hedge fund billionaire Steve Cohen has exited his investment in cryptocurrency trading startup Radkl, according to a spokesperson for the digital asset firm.
The weak yen has triggered price increases on electronics, from iPhones to refrigerators across Japan this year, with one glaring exception: the video game console.
Amazon.com Inc. has hired a senior Republican congressional aide, bolstering its efforts to thwart a new antitrust bill targeting U.S. tech companies, according to two people familiar with the hire.
The United States’ top auditor watchdog is throwing cold water on a workaround that has been touted as a way to avoid the delisting of nearly 200 Chinese companies from US stock exchanges.
Apple Inc. tapped into the U.S. investment grade bond market on Monday with a $5.5 billion four-part sale.
Skyports Ltd., which builds take-off and landing sites for flying taxis, has attracted investment from Singapore Technologies Engineering Ltd. as part of plans for a terminal in the city for airborne electric taxis.
(Updates stock movements.)
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