China’s Tech Stocks Mired In Trade & Other Woes: What Next?

On Aug 23, Alibaba Group Holding Limited BABA reported lower-than-expected earnings. This resulted in shares of U.S.-listed Chinese tech companies plummeting on Thursday. Chinese tech companies have been suffering since the beginning of the year, having lost billions of dollars in market value.

Investors’ concerns over a slowdown in Chinese economy, has been taking a toll on these stocks. Moreover, trade disputes with the United States too have also been weighing on Chinese tech stocks, at a time when China is trying to build up with own tech industries.

U.S.-listed Chinese Tech Stocks Suffer

On Aug 23, Alibaba reported fiscal first-quarter 2019 earnings of 66 cents per share, missing the Zacks Consensus Estimate of 74 cents per share. The company also said that its profit growth might slow down in the near term owing to investments in new businesses. This saw the U.S. listed shares of Alibaba declining 3.2%.

Alibaba’s share price plunge had a domino effect, which saw shares of other U.S-listed Chinese tech companies plummeting as well. Shares of Baidu, Inc. BIDU and JD.com, Inc. JD declined 1.7% and 2.9%, respectively. Also, shares of NetEase, Inc. NTSE Vipshop Holdings Limited VIPS plummeted 2.5% and 4.1%, respectively. JD.com has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chinese tech stocks too had been performing well till the end of 2017. In fact, at one point of time in 2017 Tencent Holdings Limited TCEHY had surpassed Facebook, Inc.FB in market value. However, in the second quarter, Tencent reported a drop in profit for the first time in more than a decade, as it cited difficulties with its video game business. Since January, the company has lost more than $160 billion in market value.

Slowing Economy, Trade War Hit Chinese Tech Stocks

A major reason behind the poor show by Chinese tech companies has been the broader concern of China’s slowing economy. The Chinese economy witnessed robust growth of 6.9% in 2017. The momentum continued at the beginning of 2018 but economists believe that signs of a slowdown have started showing. The Shanghai Composite Index has declined 17.1% from its January peak.