Last week, bearishness reached a peak when bell-weather e-commerce giant Alibaba (BABA) traded as low as $73.28. Vice Premier Liu He did not need to do much to reverse the negative sentiment. The Premier said he would do anything needed to support Chinese technology firms.
The Premier’s bullishness sent BABA stock up by 25% in the last week. Baidu (BIDU) and Tencent (TCEHY) reversed their decline. Even DiDi (DIDI), which will delist from the U.S. markets and failed to get China’s blessing to list on the Hong Kong market, added 116.4% last week.
China’s reassurance has little value. The government will continue to crack down on the technology sector. It will lower the cost of real estate by systemically orchestrating a de-leveraging. The medium-term fundamentals are still uncertain for leading technology firms.
Long time suffering offshore shareholders caught a break after the rally. The historical rebound erased recent losses. Investors who held Chinese stocks for more than a year still have losing positions.
Opportunity
China needs to abolish many regulations to ease competition and raise profitability for companies like Alibaba. Margins are shrinking. Revenue growth is slowing. Chinese will benefit from higher affordability as firms compete to win their business. Investors have little upside potential hoping for government rules to ease.