Chinese Tech Stocks Surge Following Big Overnight Gains in Shanghai

Alibaba, Baidu and Weibo are among the U.S.-listed Chinese tech stocks posting large gains in Monday trading.
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Following major overnight gains for Chinese equities, U.S.-listed Chinese tech stocks are ripping higher in Monday trading.

As of the time of this article, the KraneShares CSI China Internet ETF  (KWEB) - Get Report is up 3.9%. This compares with a 2.% gain for the Nasdaq, and a 1.4% gain for the S&P 500.

Microblogging platform Weibo  (WB) - Get Report is leading the pack with an 18.2% gain, and several other Chinese tech stocks are up more than 10%. The list includes content aggregator Qutoutiao  (QTT) - Get Report (up 16.5%), social media and dating app developer Momo  (MOMO) - Get Report (up 13.2%), game-streaming platform Huya  (HUYA) - Get Report (up 12.1%) and online music leader Tencent Music  (TME) - Get Report (up 10.4%).

Online portal owner Sina  (SINA) - Get Report, which maintains a large minority stake in Weibo, is up 10.5% after announcing it has received a going-private offer from a company controlled by chairman/CEO Charles Chao. Sina says its board has formed a committee to evaluate the offer.

E-commerce giants Alibaba  (BABA) - Get Report and JD.com  (JD) - Get Report are up 6.5% and 3.9%, respectively, and search giant Baidu is up 7.1%. Social media/gaming giant Tencent  (TCEHY)  is a relative under performer, registering a 1.6% gain.

The gains come after the Shanghai Composite rose 5.7% in overnight trading, aided by a bullish front-page editorial from the state-owned China Securities Journal. They also come amid growing optimism -- aided by favorable macro data -- that China’s economy is recovering strongly after getting hit earlier in the year by COVID-19 lockdowns.

In addition, some bargain-hunters might be drawn to the relatively low valuations sported by many Chinese tech stocks relative to U.S. peers. For example, even after today’s gains, Weibo trades for less than 15 times its 2019 EPS, and Baidu trades for less than 18 times its 2019 EPS. Huya, which is expected to record 30%-plus revenue growth this year, trades for about 3 times its expected 2020 sales.

By comparison, Twitter  (TWTR) - Get Report trades for about 39 times its 2019 EPS, and (with the qualifier that earnings are pressured some by its money-losing "Other Bets" segment) Alphabet  (GOOGL) - Get Report trades for about 29 times its 2019 EPS.

The KraneShares ETF is now up 37% on the year. The gains come in spite of ongoing concerns about potential accounting issues among publicly-traded Chinese firms -- concerns that were reignited in April after coffee chain owner Luckin Coffee disclosed its COO had fabricated sales.

The gains also come amid lingering worries that Chinese companies could eventually be delisted from U.S. exchanges. In May, the U.S. Senate passed a bill (seen as targeting Chinese firms) that requires companies seeking access to U.S. capital to certify that they’re “not owned or controlled by a foreign government,” and be subject to audits for three consecutive years.

Thanks in part to concerns about future access to U.S. equity markets, several U.S.-listed Chinese tech firms have carried out secondary listings in Hong Kong. JD.com and game developer NetEase  (NTES) - Get Report began trading in Hong Kong in June.

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