JPMorgan’s Chinese calls show times to market are tough

(Bloomberg) – Predicting returns on Chinese tech stocks is more difficult than ever in an age of shifting government policies, rising interest rates and cooling economies.

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Take Alex Yao of JPMorgan Chase & Co. He downgraded 28 Chinese Internet stocks in March, calling the industry “non-investable” — just before an epic rally. He then moved on to improving the industry in mid-May, and while the indices have been higher since then, the largest company, Tencent Holdings Ltd., is down nearly 20%. Alibaba Group Holding Ltd. is a hair’s breadth away from canceling all gains since Yao updated the stock.

An investor following Yao’s recommendations on Tencent would have lost 48% in the past year, the worst among analysts since the stock, according to data compiled by Bloomberg. Still, Yao has a lot of company. The strategies of many analysts on the stock would have generated losses of more than 30%. Yao and JPMorgan did not respond to requests for comment.

“Our feeling is that it will be very difficult to find the right time to move to China,” said Tom Masi, a New York-based portfolio manager at GW&K Investment Management. “What we are experiencing now are the repercussions of the slowdown in the Covid lockdown, greater uncertainty on the real estate market, growing pressure from unemployment.”

China’s internet stocks have seen wild swings even by volatile tech industry standards.

The Nasdaq Golden Dragon China index of US listed companies lost three-quarters of its value from a February 2021 peak to a low in March this year, crushed by a government regulatory crackdown. Hence, China’s sweeping promise that the worst of scrunity was over spurred a nearly 60% jump in the benchmark. But that rally dwindled in late June due to growing concerns that companies will be cleared from US exchanges and that earnings will be held back by the economic slowdown.

Tencent on Tuesday dropped to its lowest level since 2018 after it failed to get new online gaming licenses.

Yao’s March phone call should not have used the word “non-investable,” people familiar with the matter said in May. JPMorgan staff in charge of checking the bank’s research demanded that it be removed from the 28 reports written by Yao and his team before they were published, people said, but it slipped away in four of them due to an error. editorial.

For now, most analysts are still holding their own upside. Tencent has the most buy recommendations of any Asian company, while Alibaba and delivery giant Meituan also top the list, according to data compiled by Bloomberg. Analysts expect the three stocks to rise by at least 38% over the next 12 months.

The August earnings season will provide a reality check. Analysts predict a weak quarter for Chinese tech companies as the April-June period was interrupted by the blockade of the nation’s major cities. Alibaba is expected to report its first quarterly revenue drop this week.

“Confidence in the state’s willingness to thrive these companies will need to grow,” said David Waddell, CEO and chief investment strategist at Waddell & Associates. “Confidence will have to grow that the Chinese blocs will subside. Confidence will have to grow that recessions in the developed world will not sink the developing world. ”

Technical chart of the day

Tech companies have cut more than 60,000 jobs this year, according to Layoffs.fyi, which tracks both publicly traded and closely related businesses. On Monday, Oracle Corp. fired employees in marketing and its customer experience division in the United States, although the extent of the cuts cannot be determined immediately. Barclays Plc analyst Raimo Lenschow said “management is taking a proactive approach” as economic headwinds hit the software giant. The stock is down 11% this year, compared to the Nasdaq 100’s 21% drop.

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  • Uber Technologies Inc. reported revenues that exceeded analysts’ estimates, driven by resilient demand from customers who continued to ask for rides and order take-out despite rising inflation. Shares were up 16% on Tuesday.

  • Oracle cut jobs in US marketing and customer experience, signaling a retreat in customer analytics and advertising services.

  • Pinterest Inc. jumped after reporting resilient sales and user numbers, and Elliott Investment Management confirmed a major stake, saying it endorsed the company’s leadership. Shares gained around 18% on Tuesday.

  • Activision Blizzard Inc., the largest video game publisher in the United States, reported revenues that exceeded analyst estimates, but adjusted sales were down 15% from a year ago due to a soft launch of Call of Duty last fall was a slow year for the gaming industry in general.

  • As the U.S. Congress passed a landmark $ 52 billion federal program to increase domestic chip manufacturing capabilities, it included a significant caveat: Companies receiving the funding must promise not to increase their advanced chip production. in China.

  • Hedge fund billionaire Steve Cohen has abandoned his investment in cryptocurrency trading startup Radkl, according to a spokesperson for the digital asset firm.

  • The weaker yen triggered price hikes for electronics from iPhones to refrigerators across Japan this year, with one obvious exception: the video game console.

  • Amazon.com Inc. has hired a senior Republican congressman, bolstering its efforts to thwart a new antitrust bill targeting U.S. tech companies, according to two people familiar with the hiring.

  • The main US auditor checker is throwing cold water on a workaround that has been proposed as a way to avoid the delisting of nearly 200 Chinese companies from US stock exchanges.

  • Apple Inc. tapped into the US high-grade bond market on Monday with a $ 5.5 billion sale in four parts.

  • Skyports Ltd., which builds take-off and landing sites for flying taxis, has attracted investment from Singapore Technologies Engineering Ltd. as part of plans for a city terminal for airborne power stations.

(Updates stock movements.)

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