Alibaba Group Holding Ltd.’s massive overhaul plan boosted Chinese tech stocks, with investors betting the sector is in for an overdue revaluation as the regulatory environment improves.
(Bloomberg) — Alibaba Group Holding Ltd.’s massive overhaul plan boosted Chinese tech stocks, with investors betting the sector is in for an overdue revaluation as the regulatory environment improves.
Shares of Alibaba surged 12% in Hong Kong on Wednesday, the most since November and tracking gains in its American Depositary Receipts. Among its peers, Meituan rallied 4% while Tencent Holdings Ltd. and Baidu Inc. advanced slightly less than 2%.
Alibaba’s plan to split its $250 billion empire into six business units promises to yield several initial public offerings, while allowing quicker response to a rapidly-changing market environment. Analysts say the plan, which came in the wake of Jack Ma’s return to China after more than a year abroad, offers another indication that the crackdown may be done and dusted.
“Investors could get hyped on the positive side in the short term,” said Willer Chen, senior research analyst at Forsyth Barr Asia Ltd. “Alibaba’s shakeup plan may also lead investors to think of the potential for other tech firms like Tencent to follow suit.”
The plan comes as Chinese regulators vow to boost support for private enterprises after a years-long crackdown, which has burned investors and hurt market sentiment. Since the abrupt halt of Ant Group Co.’s initial public offering in November 2020, foreign investors in particular have deemed the sector as fraught with risks, leading to huge valuation discounts.
Alibaba’s forward earnings multiple rates the stock cheaper than utility firm CLP Holdings Ltd. and on par with China Telecom Corp.
Affiliates of Alibaba also rallied on Wednesday. Alibaba Health Information Technology Ltd. and Alibaba Pictures Group Ltd. both advanced 5.2%.
READ: China Tech Stocks Rise as Alibaba Plans Key Reshuffle
Chinese authorities are keen to boost growth as the world’s second-largest economy emerges from Covid restrictions. However, multiple pledges to support private enterprise for that purpose have failed to fundamentally reverse investor wariness.
The Hang Seng Tech Index closed 2.5% higher.
“The big tech platforms, which have been under pressure over the last couple of years and shedding staff, are key to helping the government boost employment,” Vey-Sern Ling, managing director at Union Bancaire Privee, said in a Bloomberg TV interview. “So from that angle, I think it is possible to assume that the government can be more supportive of these platforms going forward.”
–With assistance from John Cheng and Jeanny Yu.
(Updates with Wednesday’s closing prices)
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