Chinese stocks edge lower as traders weigh Liu’s support vow

Bloomberg

Chinese stocks closed lower after rallying in the previous session as traders assessed fresh support pledges from Vice Premier Liu He for the battered tech sector.
The Hang Seng Tech Index pared earlier declines to end 0.3% lower in Hong Kong. The benchmark Hang Seng Index eked out gains, while China’s CSI 300 Index trimmed losses to 0.4%. Automakers were among the biggest gainers on the two gauges following a report that Chinese government departments are in talks with firms about extending subsidies for electric vehicles.
The fluctuations show markets are yet to set a direction following the much-anticipated meeting between Liu, China’s top economic official, and some of the nation’s tech giants. Liu said the government will support the development of digital economy companies and their listing overseas. While that sparked a more than 5% rally in a gauge of Chinese stocks trading in the US, the excitement waned in the Asia session.
Concerns related to Covid-19 also remained in focus as cases rose in Tianjin and a cluster was ballooning in Sichuan province.
“It is difficult to assess if Chinese equities have bottomed, especially with more economic pain to come as authorities persist on the Zero Covid path, but we believe long term value has emerged,” for some sectors, said Eli Lee, head of investment strategy at Bank of Singapore. “Markets are also forward-looking and a lot of negativity has been priced into Chinese tech at this point.”
More than a year into Beijing’s sweeping regulatory crackdown on private enterprise, investors remain wary about getting back into the sector. Even as authorities have repeatedly promised to soften their stance on internet companies — including Liu’s remarks in mid-March — stock market rallies have rarely lasted more than a few days as new uncertainties related to regulation or Covid-19 outbreaks would resurface.
“Although investors are aware that there won’t be many punitive measures for tech from now, Covid-19 concerns will continue to depress valuations across the board,” said Hou Anyang, fund manager at Frontsea Asset Management. The meeting wasn’t enough to ease worries, he added.
Still, in a sign of emerging optimism, JPMorgan Chase & Co. analysts upgraded a number of tech firms including Alibaba Group Holding Ltd and Tencent Holdings Ltd. to overweight earlier this week, just two months after deeming the
sector “uninvestable.”
Separately, data showed home prices fell for an eighth month in April amid strict coronavirus lockdowns. The deepening slump is another blow to China’s embattled property sector, which the authorities have sought to support as part of efforts to halt
a slowdown in the world’s
second-largest economy.
Where China’s stock market goes from here will hinge on whether policy makers follow through on their promises, and the nation’s Covid-19 situation.
Chinese equities may set “lower lows into the year-end” as the US raises interest rates and scuppers global risk appetite, said Ilya Spivak, head of Greater Asia at DailyFX. “Rising interest rates mean people are resistant to taking risk, which means they are that much more responsive to things like regulatory disruptions or Covid lockdowns.”