Traders Look to China Tech Earnings to Stem Losses: Taking Stock

(Bloomberg) -- Investor hopes that Wednesday’s nascent equity market rebound will continue likely depends on the imminent results from two of China’s biggest companies -- Tencent Holdings Ltd. and Alibaba Group Holding Ltd.

The two technology giants -- the ‘A’ and ‘T’ in the BAT complex -- are set to report today against a backdrop of renewed anxiety over the Sino-American trade war and ongoing concern about the health and resiliency of China’s economy. Investors stand to get fresh insights on both fronts when the companies unveil their latest quarterly earnings.

Expectations are high for the two biggest stocks in the MSCI Asia Pacific Index, with a combined weight of almost 6%, according to data compiled by Bloomberg. Alibaba and Tencent have been key drivers for gains in the benchmark with the pair up 28% and 19% respectively so far this year, bouncing back from losses in 2018.

Traders Look to China Tech Earnings to Stem Losses: Taking Stock

Morgan Stanley raised its price target for Tencent ahead of the results, to HK$430 from HK$408, while also boosting earnings estimates by 5% in 2019 and 6% in 2020 on expectations the tech conglomerate will win market share and outperform peers in coming quarters thanks to its game pipeline.

Meanwhile Alibaba is forecast to post a 48% increase in revenue from a year ago, according to data compiled by Bloomberg. The company hasn’t had quarterly revenue growth of less than 40% since 2016. The options market is also pointing to more earnings-day volatility than normal following results, implying a 6.9% move that is more than double than the two-year average.

Looking beyond the results, analysts forecast continued substantial upside for both stocks. Tencent, with 53 buys, 6 holds and no sell ratings, is expected to climb 14% from its current price according to its consensus 12-month target price of HK$428.53. Alibaba, with 52 buys, 1 hold and 1 sell, has 21% upside by the same measure.

At the moment, Asia equities are getting a lift from a relief rally in the U.S. overnight, with the MSCI Asia Pacific Index 0.4% higher to halt a two-day slide. Stocks in Shanghai and Hong Kong are leading gains, as disappointing April economic data from China is spurring speculation the government will introduce more stimulus measures. U.S. stock-index futures are also higher Wednesday.

China’s industrial output rose 5.4% year-over-year, falling short of median estimates, while retail sales slowed to 7.2%, also short of expectations.

“Assuming we see further easing soon, we think growth should stage a mild recovery in the second half of this year,” said Julian Evans-Pritchard, senior China economist with Capital Economics in a note to clients.

Stock-Market Summary

  • MSCI Asia Pacific Index up 0.4%
  • Japan’s Topix index up 0.2%; Nikkei 225 up 0.2%
  • Hong Kong’s Hang Seng Index up 0.6%; Hang Seng China Enterprises up 0.6%; Shanghai Composite up 1.1%; CSI 300 up 1.3%
  • Taiwan’s Taiex index up 0.7%
  • South Korea’s Kospi index up 0.7%; Kospi 200 up 0.7%
  • Australia’s S&P/ASX 200 up 0.6%; New Zealand’s S&P/NZX 50 up 0.9%
  • Singapore’s Straits Times Index little changed; Malaysia’s KLCI up 0.8%; Philippine Stock Exchange Index up 0.6%; Jakarta Composite little changed; Thailand’s SET up 0.2%; Vietnam’s VN Index up 0.7%
  • S&P 500 e-mini futures up 0.2% after index closed up 0.8% in last session

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