(Bloomberg) — Alibaba Group Holding Ltd. whipsawed in US premarket trading after China’s regulator denied a Bloomberg report that it was working to revive the initial public offering of Jack Ma’s Ant Group Co.
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Shares of the e-commerce giant shot up as much as 7% earlier after a Bloomberg News report that China’s financial regulators have established a team to assess the fintech giant’s share sale plans. The stock quickly reversed those gains, falling 2% after the China Securities Regulatory Commission denied the report, but said it supports eligible internet platform companies to list overseas.
While Chinese tech shares lose some momentum on Thursday as traders take profit, bullish calls are returning to the bruised sector on hope that regulators are taking a more lenient line toward the sector after more than a year of regulatory squeeze. Chinese stocks have staged strong rallies in Hong Kong and New York this week following news of a likely wrap-up of a probe into Didi Global Inc. and a slew of new game approvals.
“We were only saying a few days ago that if Ant was rehabilitated it would mark a major positive. This, in a sense, was where the trouble started,” said Gary Dugan, chief executive officer of the Global CIO Office. “If true, it would be very good news and a major potential turning point for the China tech sector and broader Chinese markets.”
The sudden scuttling of Ant’s IPO in November 2020 — just days before the fintech juggernaut was to go public — marked the beginning of China’s hallmark regulatory crackdown that has swept across the country’s internet sector. The crackdown has seen foreign investors flee and the sector labeled “uninvestable.” Alibaba owns about a third of Ant.
Bullish Pivot
While many strategists have started to turn bullish from late 2021, citing cheap valuation and expectations of better policy environment, a sustainable rally had seemed elusive with rebounds barely lasting a few days. Goldman Sachs Group Inc. and Jefferies Financial Group Inc. have been among the early believers of a China turnaround, only to see the Hang Seng Tech Index slide to new lows.
Sentiment took a turn for the better in mid-March this year, when China’s economic czar — Vice Premier Liu He — promised to swiftly end tech scrutiny, stabilize financial markets, and deploy measures to prop up the economy. While the pledges initially seemed to ring hollow with no concrete action, those doubts were likely put to rest this week.
The Ant news “is a sign that regulators are following through on their pledge to end the crackdown on tech platforms, which will continue to improve sentiment on the sector,” said Marvin Chen, analyst at Bloomberg Intelligence. “Potential revival of the Ant IPO may also help support financial markets in the region as fundraising activity has dried up this year.”
Chinese tech shares have outperformed US peers in recent sessions, with the Nasdaq Golden Dragon Index is down 11% this year, compared with the Nasdaq 100’s 23% slump.
One big market overhang, though, still remains — China’s Covid Zero policy. Having earlier moved to lift lockdowns in Shanghai and reopen Beijing’s economy, partial movement restrictions are returning as authorities remain determined to stamp out the highly-transmissible omicron.
Still, the number of strategists and money managers saying it’s time to buy China has been growing by the day, with even the most bearish participants seeing opportunities, at least for the short term.
Various market indicators also suggest the nascent rally in both local and overseas-listed Chinese shares may have further momentum, partially aided by the lifting of Covid-induced lockdowns in Shanghai and Beijing.
Foreign investors have been net buyers of mainland equities for nine straight sessions through Thursday, the longest streak since December, Bloomberg-compiled data show. The tech gauge in Hong Kong has breached its 50-day and 100-day moving averages, key technical hurdles that indicate more gains may be in store.
It “may be considered as the official end of regulatory risk” as the crackdown started with the freezing of Ant’s IPO, said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Limited.
(Updates throughout)
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