(Bloomberg) — Chinese technology stocks rallied for a second day as bargain hunters returned, emboldened by Tencent Holdings Ltd.’s share buyback and strong results from JD.com, which drew Cathie Wood back into the market.
The Hang Seng Tech Index advanced more than 7%, adding to a 2% gain on Monday, after a five-week rout that took the gauge to the lowest level since its inception last year. Heavyweights Tencent and Alibaba Group Holding Ltd. climbed 8.8% and 9.5%, respectively. Meanwhile, in New York, the Nasdaq Golden Dragon China Index jumped 8% to close higher for a third straight session.
While there’s no indication that the nation’s increased oversight on tech and other fast growing businesses will ease, the absence of new initiatives in recent days opened the door to investors who see longer-term value in China stocks. Some are also taking a cue from technical charts that show the index plunged into oversold territory last week.
“We are seeing lots of bottom-fishing activities in the market, including strong buying of Tencent and Alibaba,” said Jackson Wong, asset management director at Amber Hill Capital Ltd. “Companies that have fallen the most and prove to have solid fundamentals will lead the rebound.”
Wood’s Ark Investment Management bought American depository receipts of JD.com on Monday after its quarterly sales beat estimates. The purchases by the thematic tech-focused global investment firm come after it had earlier this year reduced its China holdings to a negligible amount.
Despite nearly six months of selling pressure, Wall Street has mostly held firm on its ratings for some of China’s largest stocks. Tech-giants Alibaba and JD.com both have the equivalent of a buy rating from more than 93% of analysts, while Bilibili Inc. has a buy rating from all 43 analysts that cover the stock.
Even after Tuesday’s rally, the trio sports an average 12-month price target that is 44% above their current price. Only nine stocks in the S&P 500 Index can boast a similar or better return potential.
“Valuations look appealing if investors want to hold for 6 months or longer,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.
Tencent is Cheaper Than Days of Trade War Doldrums: Chart
The buy-the-dip crowd spurred a record inflow into the $5.35 billion KraneShares CSI China Internet ETF late last week, according to data compiled by Bloomberg. Investors poured more than $530 million into the fund on Friday, which has attracted about $4.4 billion dollars in inflows this year despite sinking 34%.
Quick Rebound
MSCI Inc., the world’s biggest index provider, shook off concerns about the “investability” of Chinese stocks, citing previous instances of resilience in the nation’s markets.
Regulatory compliance has weighed on China “every three, four, five years and obviously the markets have sold off at the time. But very quickly afterwards, the markets have recovered and gone through to new heights,” MSCI Inc. Chairman and Chief Executive Officer Henry Fernandez told Bloomberg Television.
That’s a view echoed by Gabriela Santos, a global market strategist at JPMorgan Chase’s asset management unit.
“It takes time to rebuild confidence, but three months out Chinese equities tend to trend up,” she said in an interview with Bloomberg Television on Saturday.
Veteran fund manager Hugh Young of Aberdeen Standard Investments said earlier this month that his firm bought the dip in Tencent and kept most of its other big-tech holdings largely unchanged.
(Updates to include details on analyst ratings, pricing throughout.)
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