China Tech Stocks Rise as Analysts Turn Positive After Selloff

(Bloomberg) -- Chinese internet stocks rallied in Hong Kong on Tuesday after some brokers started to turn optimistic on the sector and said investors were making an attempt to find a bottom in prices after the recent selloff.

The Hang Seng Tech Index rose 2.5%, the most in nearly two weeks, to snap a three-day losing streak. The sector bellwether Tencent Holdings Ltd. jumped 5.3% while food delivery giant Meituan rallied 8.4%, adding to Monday’s 3.1% gain following reports Chinese authorities may be wrapping up an antitrust investigation into the company.

Kuaishou Technology, which initially led the advance, gave up most of its gains to close 3% higher. The short-video app’s stock plunged by a record last week after an influential state-backed newspaper urged tighter regulation of internet video content, and as share lockups expired for some investors.

Positive notes from brokers including Nomura Holdings Inc. on the sector and those by Sanford C. Bernstein & Co. and China International Capital Corp. on Kuaishou are aiding the sentiment. The gains may give confidence to investors in Chinese tech names after a government clampdown on sectors ranging from education to technology wiped out about $1 trillion off shares listed on the mainland, Hong Kong and the U.S. last month.

“There was so much bad news on tech companies early this month, so it’s not a surprise that some investors bought such stocks after the big slump,” said Alvin Ngan, analyst at Zhongtai Financial International Ltd. “But it’s still early to say that tech stocks are at a bottom.”

Kuaishou had one of the best first days of trading when it listed in Hong Kong in February, but the stock had slumped as much as 80% from its peak. The decline has come amid fears over Beijing’s crackdown, as well as concerns about its profit outlook after first-quarter earnings missed estimates. Before the rebound, the stock closed at a record low on Monday and was down 28% from its IPO price.

Bernstein upgraded the stock to market perform on Tuesday. That followed CICC’s slightly bullish note from Monday in which analysts including Yanyan Xiao said the share price contraction has fully reflected the negatives and there should be further upside for video content penetration.

Kuaishou’s rebound comes as Hong Kong’s gauge for tech stocks regains some of the ground lost during its slump to a record low last month. Still, the Hang Seng Tech index is down nearly 20% for the year.

Investors of shares in Hong Kong and China may have started to accumulate blue-chip internet names on the view that tighter regulations have more than sufficiently been priced in, Nomura Holdings Inc. analysts including Jialong Shi wrote in a note.

“The internet sector as a whole may trade range-bound in the near term before likely seeing a consistent rally in 4Q if the regulatory environment stabilizes by then,” they wrote.

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