STREAMING NOW: Watch Now

Why Chinese tech stocks are getting hammered

Investors are fleeing China's big tech companies.The country's major players -- Baidu, Alibaba and Te...

Posted: Aug 17, 2018 12:27 PM
Updated: Aug 17, 2018 12:27 PM

Investors are fleeing China's big tech companies.

The country's major players -- Baidu, Alibaba and Tencent -- have lost hundreds of billions of dollars in market value in the past few months.

And the slump is wider than just those three. While US tech stocks have generally been on the rise -- the Dow Jones Internet Composite Index is up more than 25% this year -- their Chinese counterparts have headed in the opposite direction. An index that tracks leading Chinese tech companies is down about 12%.

Some market experts say investors got carried away and ignored warnings that they were paying far more than Chinese internet companies' earnings justified.

Mohammed Apabhai, head of Asia trading strategy at Citigroup, likens the exuberance for tech stocks to the Looney Tunes cartoons in which Wile E. Coyote chases Road Runner over a cliff.

"You know when he goes over the edge and he keeps pedaling before he drops?" Apabhai said. "It's like that."

Related: Tencent has a major gaming problem

The sector suffered a heavy blow this week after Tencent, whose businesses include social media and online gaming, stunned investors with a surprise fall in operating profit. It blamed difficulties with its video game business in China for the disappointing performance.

"When earnings actually decline instead of go up, there's no way you can justify those stocks" at high valuations, Apabhai said.

Late last year, Tencent's market value eclipsed Facebook's. But since January, the Chinese company's value has shed more than $160 billion.

Shares in Baidu, China's biggest search engine, have also been clobbered by an unexpected management reshuffle and reports that rival Google could be bringing a censored version of its search app to China.

China's slowdown

Chinese tech stocks are also suffering from broader concerns about the health of China's economy, which has started to slow down. That's prompted worries about what the impact could be on companies in many industries, hurting Chinese stocks across the board.

"There are some hiccups and some stuttering happening in the China economy, and that's going to ripple through all of these names whether its Alibaba or Tencent," Colin Gillis, director of research with Chatham Road Partners, said on CNN this week.

Related: China's Tencent turns to US for IPO of its music business

The trade war with the United States is adding to the unease. China's championing of homegrown tech industries is a key element in the tensions between Beijing and Washington.

"Given that we've got new tariffs coming in on August 23, it's not directly impacting any of these [tech] names, but there's no need to be jumping into these stocks right now," Gillis said.

Bad time to go public

Chinese tech companies who only recently went public are also having a rough ride.

Smartphone maker Xiaomi was at one point reportedly seeking to raise $10 billion in one of the most highly anticipated IPOs of the year. But in the end the company raised less than half that amount, and its Hong Kong-listed stock is now trading below its IPO price. Xiaomi's CEO has blamed the trade war for making market conditions difficult for its listing.

Related: China is it making it harder to invest in smartphone maker Xiaomi

E-books company China Literature popped as much as 100% on its market debut late last year. But its share price has more than halved since then, falling about 10% below the IPO price this week after investors reacted badly to its plans to buy a movie company.

Despite the gloom, plenty of analysts remain upbeat about the longer-term prospects for some Chinese tech stocks.

Tencent "is a company that's gone from gaming to social networks, to commerce, to payments, to venture capitalist, and is now the largest tech company by valuation size" in China, Ray Wang, an analyst with Constellation Research, said on CNN this week.

The stock's recent declines offer investors an opportunity in his view: "I think it's a good time at the moment, because the overall fundamentals are good."

Click to Submit Photo

 

 

Huntsville
Broken Clouds
68° wxIcon
Hi: 69° Lo: 58°
Feels Like: 68°
Florence
Overcast
68° wxIcon
Hi: 67° Lo: 56°
Feels Like: 68°
Fayetteville
Overcast
68° wxIcon
Hi: 70° Lo: 57°
Feels Like: 68°
Decatur
Overcast
67° wxIcon
Hi: 67° Lo: 57°
Feels Like: 67°
Scottsboro
Overcast
72° wxIcon
Hi: 71° Lo: 60°
Feels Like: 72°
WAAY Radar
WAAY WAAY-TV Cam
WAAY Temperatures

Alabama Coronavirus Cases

Confirmed Cases: 155915

Reported Deaths: 2674
CountyConfirmedDeaths
Jefferson23129377
Mobile16849315
Tuscaloosa10296140
Montgomery10197197
Madison928096
Shelby733863
Baldwin663769
Lee653465
Calhoun456761
Marshall438150
Etowah426551
Houston414834
Morgan412035
DeKalb338829
Elmore320053
St. Clair292542
Limestone284230
Walker277292
Talladega265335
Cullman244024
Lauderdale226242
Jackson214915
Franklin205231
Autauga204831
Colbert200532
Russell19443
Blount192525
Chilton186932
Dallas186527
Coffee176311
Dale175151
Covington174029
Escambia172530
Chambers135044
Clarke134317
Pike133513
Tallapoosa131787
Marion107629
Barbour10319
Marengo100822
Butler100740
Winston92213
Geneva9007
Lawrence85032
Pickens84718
Bibb82814
Randolph82316
Hale76730
Washington74412
Clay74112
Cherokee73314
Lowndes70928
Henry7086
Bullock64817
Monroe64610
Crenshaw60630
Perry5896
Fayette57413
Wilcox56712
Conecuh56113
Cleburne5568
Macon53420
Lamar4905
Sumter47221
Choctaw39012
Greene34216
Coosa2033
Out of AL00
Unassigned00

Tennessee Coronavirus Cases

Confirmed Cases: 244087

Reported Deaths: 3100
CountyConfirmedDeaths
Shelby35753562
Davidson31206336
Knox1256189
Hamilton11618108
Rutherford11611112
Williamson697156
Sumner5948109
Wilson462956
Putnam440356
Montgomery411555
Out of TN389635
Madison374079
Sullivan365346
Bradley355823
Washington338850
Sevier332821
Blount330936
Maury321837
Unassigned29539
Robertson258941
Hamblen244548
Tipton232222
Dyer218930
Gibson213043
Hardeman186433
Coffee185323
Trousdale17687
Obion174121
Greene168451
Bedford168120
Fayette166723
Anderson166614
Dickson164819
McMinn161535
Loudon161211
Cumberland159525
Wayne15917
Lawrence158719
Jefferson153720
Carter152932
Weakley152325
Monroe144328
Warren142510
Lauderdale142317
Henderson140226
Hardin137919
Macon132425
Roane12857
Franklin127819
Haywood127227
Overton121316
Hawkins118825
White117514
Johnson11327
Carroll113025
Marshall11269
McNairy111227
Rhea109317
Cheatham104111
Cocke103514
Bledsoe10114
Campbell100011
Smith98413
Lake9833
Giles95135
Fentress90811
Lincoln8803
Crockett83320
Henry78110
Hickman77915
Marion7479
Chester72514
DeKalb72517
Decatur65511
Grainger6034
Grundy55311
Union5383
Claiborne5186
Polk50313
Jackson4525
Humphreys4404
Morgan4357
Benton4139
Houston40917
Cannon4082
Unicoi4043
Clay40113
Lewis3852
Scott3745
Sequatchie3422
Stewart32010
Meigs3076
Perry2912
Pickett2727
Moore2652
Van Buren2051
Hancock1173

Community Events