As revenue at Chinese big tech companies seemingly slows down, the unique selling point for their stocks is no longer valid. A lot has changed since the glory days of 2019 when all Chinese tech firms, no matter their size, talked about an IPO in the U.S. or Hong Kong.
There were also changes in the macro-environment since 2019, initially, it started with Beijing’s crackdown on big tech in late 2020, delisting risk for Chinese companies in the U.S., and now poor consumer sentiment amid the renewal of the Pandemic in China.
All of these factors seem to have created a perfect storm for Chinese tech stocks contributing to the Hong Kong tech stock index, down almost 70% from all-time high just three weeks back on March 15.
Apparently, the tech companies in China are now on a downsizing spree and coupled with the slumping housing market and geopolitical tensions, problems for the Chinese economy could just be starting. China might need to look to new partners to kick start its economy.
Big companies performance
Earlier Reuters reported that Alibaba (NYSE: BABA) and Tencent (TCEHY) were preparing to cut thousands of jobs combined. Alibaba could cut 15% of its total workforce which would translate to 39,000 workers.
The performance of large Chinese tech stocks in 2022 was disappointing, to say the least with $460 billion in outflows as of March. Incidentally, the tech sector in the U.S. has also had its ups and downs, however, less risk is seen in the U.S. than in Chinese tech stocks at the moment.
How did BABA fare?
Alibaba’s stock now trades close in a descending channel, below the 20-50-200 day Simple Moving Averages. If the layoffs and lockdowns continue the stock could see some more pain before it actually gets better.
Last month we reported on BABA it was down 70% from its peak, subjected to regulatory pressures from both the United States and China, and as a result, significant investors have tended to shun such equities, resulting in decreases.
DIDI performance year-to-date
DiDi Global (NYSE: DIDI) stock lost 60% of its value in 2022, it wasn’t helpful that the company decided to shelf its announced initial public offering (IPO). The stock is trading in a continuous descending channel below all of the SMAs.
BIDU holding it together
Shares of Baidu (NASDAQ: BIDU) from their highs in July 2021 lost ‘only’ 35% until April 8th, 2022. Like the other Chinese tech stocks, BIDU is also trading below all SMAs with possible pain ahead if the Chinese economy takes further hits.
Where does this leave us?
Geopolitical tensions are creating a challenging investing environment globally. Rising Covid cases in China and new lockdowns will definitely not be helpful for worn-down tech stocks. There are no signs that regulatory pressure at home will decrease any time soon for the tech sector in China.
Investors will be well advised to keep an eye on the global situation and development relating to Covid cases in regard to Chinese tech companies.
Currently, risk for investment in Chinese tech giants seems to be too great, standing on the sidelines and tracking developments could be the best way to play for now.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.