China’s government has more strictly regulated its technology sector for more than a year, hammering major Chinese tech stocks listed in the U.S., such as Alibaba (BABA) and JD.com (JD) .
But now the government is set to pull back, out of concern about recent weakness in the Chinese economy, according to The Wall Street Journal, which cited people familiar with the matter.
The government’s recent Covid lockdowns in major cities have hampered economic performance.
China’s top internet regulator plans to meet with major tech companies next week to discuss regulatory matters, the sources said. They said the meeting showed the government understands the problems created by the regulatory clampdown. The big tech companies are a major part of the Chinese economy’s vitality.
Major Chinese tech stocks listed in the U.S. registered sharp gains after the Journal's report.
Shares of e-commerce titan Alibaba at last check on April 29 climbed 8.5% but are still down 57% for the past year. Shares of fellow e-commerce giant JD.com moved up nearly 8% but are down 20% over the past 12 months.
Shares of diversified tech company Baidu (BIDU) gained 4.7% on April 29 but are down 42% over the past year. And shares of internet company NetEase (NTES) rose almost 6% April 29 but are down 15% for the past year.
Morningstar analyst Chelsey Tam on April 14 cut her fair-value estimate for Alibaba stock by 5% to $179. That’s still 79% above the recent price of $99.85.
Problems include worsening disruptions from China’s covid lockdowns and supply-chain turmoil caused by Russia's war on Ukraine.
Tam lowered her estimate of growth for Alibaba’s China retail-marketplace gross merchandise volume in coming years.
“This factors in long-term market-share loss to e-commerce peers, traffic platforms, and consumers’ increasingly decentralized shopping behaviors,” Tam said.
On the bright side, “we think a strong network effect allows leading e-commerce players to extend into other growth avenues, and nowhere is that more evident than with Alibaba,” Tam said.
Turning to JD.com, she puts fair value for the stock at $105, 68% above a recent quote of $62.47.
Tam expects lower sales growth in the second quarter, thanks to the covid lockdown.
“Resumption of discretionary purchases after this covid-19 wave, reopening and government stimulus will help JD to achieve 17% growth this year,” she said.
“We expect JD to cut costs in new businesses, especially in the community group purchase business, more aggressively than Meituan MPNGF and Alibaba. … JD has reduced its province of operations from 20 last year to five this year.”
Dan is a freelance writer whose work has appeared in The Wall Street Journal, Barron’s, Institutional Investor, The Washington Post and other publications.