In a quarter filled with economic and geopolitical uncertainties, Chinese tech companies from Tencent Holdings to Alibaba Group have disappointed with their financial reports.
Over the past week, the market value of China’s top five tech companies evaporated by $41 billion, with the Hang Seng TECH Index entering bear market territory, signaling a significant downturn in market sentiment.
Repeatedly during investor conference calls, Chinese tech companies have pointed out that the unstable economic environment has significantly impacted their business, making the outlook for the companies even more uncertain. While most companies have cautiously optimistic views on the stimulus measures released by authorities in late summer, they are urging investors to be patient and wait.
However, Bloomberg noted that this quarter’s financial results have already appeared to be a disappointment for investors hoping that the big tech companies’ financial reports would reignite market enthusiasm. The string of lackluster financial figures, vague financial strategies, and warnings have gradually dampened market optimism, making investors’ future expectations more cautious and uncertain.
Bloomberg pointed out that these private companies that once challenged Silicon Valley and were capable of defining the country’s economy seem to lack breakthrough ideas and ambitious goals.
For example, in its earnings announcements, Pinduoduo executives are always “boasting about their cheap hairy crabs rather than providing guarantees for disappointing profits”.
During this quarter’s earnings call, Pinduoduo’s Co-CEO Zhao Jiazhen made sharper comments, beginning to criticize his own team’s issues. He said, “Our team of employees is now constrained by past experiences and lacks certain capabilities.”
Tencent has stated that it will maintain the long-term operation of existing “evergreen” games but has not committed to launching any major new titles.
Alibaba’s top management has spent time defending increased spending, stating it is to cope with intensifying competition.
While Baidu has a leading advantage in the field of artificial intelligence, the company did not introduce any breakthrough or eye-catching new products in this quarter’s report to spark investor interest. Luo Rong, Head of Baidu’s Mobile Ecosystem, said in a conference call on the 21st, “We have not observed a significant improvement in advertisers’ spending patterns, and consumer spending remains weak.”
With disappointing tech stock earnings and growing bearish sentiment among investors due to Trump’s return to the White House and disappointment in Beijing’s fiscal stimulus, Chinese stocks saw accelerated selling last Friday (November 22), with the Shanghai and Shenzhen 300 Index plunging 3.1%. The Hang Seng China Index fell by 2.6%, and the Hang Seng TECH Index dropped by 3%.
Alicia Garcia Herrero, Chief Economist for Asia Pacific at Natixis, stated, “The current business environment in China is not only worse than five years ago but even worse than when the policy to reset to zero was launched in 2022.”
She pointed out, “This industry clearly benefits from China’s Communist industrial policy and aims to compete with the United States in the technology field, but at the same time, it is a problematic industry.”
Since Beijing launched a massive crackdown on companies in the name of anti-monopoly and regulation in 2020, the “confidence” of private enterprises has been severely damaged. Companies that once saw significant growth through the Chinese economy now face weak domestic consumption, lack of clear growth drivers, and high costs required to expand into overseas markets.
Ng Xin Yao, Asian Equity Portfolio Manager at abrdn, said, “Retail sales in October were boosted by the earlier Singles’ Day promotions, so they do not accurately reflect the true consumption environment – after talking to some companies, they remain cautious. Overall, I heard that November will be weaker.”
Regarding Pinduoduo’s U.S.-listed stock plunging 11% due to escalating U.S.-China competition and Alibaba’s domestic e-commerce business barely growing by 1%, Ng Xin Yao said, “I don’t think they will fall back to the levels before the rebound in September but will consolidate sideways in the absence of catalysts.”
In the gaming sector, John Choi, an analyst at Daiwa Capital Markets, stated that this industry no longer enjoys the stable growth it once did but relies more on economic cycle fluctuations.