(Bloomberg) — U.S.-listed Chinese technology shares that have staged a rebound this month are facing a reality check in the coming weeks as they disclose the earnings hit from Beijing’s regulatory clampdown.
Over 30 members accounting for more than half of the Nasdaq Golden Dragon Index’s weighting are slated to release quarterly results in the remainder of November. They include search engine Baidu Inc., which is estimated to log a 82% year-on-year drop in net income, and e-commerce giant Alibaba Group Holding Ltd, whose earnings are expected to fall 17%, Bloomberg-compiled data show.
The reports are set to test traders’ confidence in holding on to a sector beleaguered by China’s regulatory storm, cooling economic growth there and the delisting threat in the U.S. The Nasdaq Golden Dragon Index slumped 52% from this year’s peak in February to October’s trough, compared with a 7% gain in a gauge of S&P 500 tech shares during the same period.
“The earnings this time around are a reflection of the regulatory issues and the weakness of consumer demand in the wake of the challenges in the economy,” said Gary Dugan, chief executive officer of the Global CIO Office.
Retail sales growth in China has been struggling to pick up meaningfully after hitting its slowest rate in a year in August, as strict Covid-related travel controls dampened consumer spending. E-commerce platform operator JD.com Inc. may see net income fall 78% year on year in the September quarter, according to Bloomberg-compiled data.
The pains caused by tightening regulations implemented since July will also be laid bare in the earnings report, such as the ban on tutoring firms — a key customer base of tech companies’ advertising business — from going public or making a profit. The limit on game playing time for minors and the grip on overseas initial public offerings were also imposed during the last quarter.
Read: Temasek Sells Off Chinese Tech Stocks Amid Crackdown by Beijing
Tencent Holdings Ltd., which reported results last week, saw its revenue grow at the slowest pace since 2004. News portal Sohu.com Ltd.’s brand advertising income was smaller than the lower end of guidance and the management’s forecast for the December quarter missed Jefferies’ estimates, according to a research note by the broker.
“Along with the slowing economy and weakness in key areas like online advertising, depressed valuations may remain in place for quite a bit longer,” said Bloomberg Intelligence analyst Matthew Kanterman.
China has slowed the pace of tech regulations more recently and investors piled in, pushing the Golden Dragon Index up 5% this month. Tencent shares rose 2.2% in Hong Kong on Tuesday to a three-week high following a local media report that regulators are set to resume approving new games after a three-month halt.
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