Investor sentiment toward China was undercut this week after two significant foreign investors in Chinese stocks announced they were liquidating their Chinese holdings. On Wednesday, European internet giant Prosus NV registered more than $4 billion of its stake in China’s Tencent Holdings (TCEHY) for potential sale in Hong Kong, while Japan’s SoftBank Group today said it is preparing to exit the majority of its stake in Alibaba Group Holding (BABA).
These latest moves by foreign investors to sell their Chinese stock holdings have dented investor optimism in Chinese stocks, despite recent promises by the Chinese government to loosen its regulatory crackdown on the technology sector and welcome foreign capital into the country. IG Asia said, “Reported plans to lower exposure in Alibaba by Softbank may reiterate the prevailing loss of confidence in Chinese tech firms by foreign investors, giving rise to concerns that more may do the same.”
In recent months, China has tried to mend its image for foreign investors, with President Xi Jinping this week calling on foreign investors to “seize opportunities” in China as it improves its business environment. However, after China’s regulatory crackdown in the technology sector in 2021 and 2022, and the quashing of political dissent in Hong Kong and the status of Taiwan, have stoked foreign skepticism about the viability of long-term investments in China.
The earnings outlook for Alibaba Group Holding and Tencent Holdings has deteriorated over the past two years, likely aiding the exodus of foreign investment in the firms. Both companies reported their first revenue decline ever in 2022 and are now posting only single-digit gains every quarter, a far cry from previous years of consistent double-digit expansion and a consistent flow of startup deals.
The current global market environment has also prompted some liquidation of foreign assets in China. Softbank has been offloading some of its biggest holdings in part to shore up its balance sheet at a time when the failure of Silicon Valley Bank and rising interest rates have drained liquidity and added pressure on investment firms. Also, Prosus NV said it would use the proceeds of the sale of its Tencent holdings to fund buybacks.
Nevertheless, some analysts are still upbeat about Chinese tech stocks after Alibaba recently announced a plan to unlock value by splitting itself into six separate companies. Robeco Group said the “key going forward will be business pick up from China’s re-opening, shareholder return policies, and perceived AI success in the medium term.”
US Chip Controls Threaten China's Technology Ambitions
China’s Insatiable Demand For Gold Explained
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
