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what happened
china internet stocks Yew (IQ -14.87%), Bilibili (Billi -1.88%)When tencent music entertainment (TME -1.58%) Data from S&P Global Market Intelligence showed significant gains in December, up 78.5%, 36.5% and 18.1% respectively.
The main reason for the rise in the same period was China’s sharp shift from a “no-coronavirus” lockdown to a rapid reopening last month. Tencent Music had already seen a significant uptick in November following a better-than-expected earnings report in mid-November. Additionally, iQiyi said he had an exciting product release in December, while Bilibili announced several job cuts to boost profits.
So what
Chinese stocks sold off throughout 2022 as a result of the zero COVID lockdown, following the previous year’s crash stemming from the government’s crackdown on Chinese tech companies. Of course, it set the stage for a big rally when the government decided to reverse course on both counts.
In early December, China suddenly decided to resume economic activity after implementing a strict “no coronavirus” lockdown since March last year. Additionally, the government appears to be keeping the tech industry on its toes, with more video game approvals slated for last month, and recent reports suggest the authorities may want Ant Financial to raise more money. indicates that you have approved the This is important because the Ant IPO failure was the very issue he started cracking down on the tech in late 2020.
In addition to nationwide reopenings and easing restrictions, there was also some positive news for each of these three companies last month.
December 1st, Morgan Stanley Analyst Alex Poon upgraded Tencent Music from “same weight” to “overweight.” Poon noted that his TME’s music-streaming segment, which has been in the red since 2020, achieved break-even last quarter despite a decline in its more profitable live-streaming service segment. Still, Poon sees these live streaming declines stabilizing, and when combined with the currently profitable streaming segment, he paving the way for more than 10% annual revenue growth over the next three years. must.
On a less-than-joyful but bullish theme, Bilibili announced several headcount cuts towards the end of the month, cutting about 30% of its staff across its new streaming, video games, and operations departments. Job cuts aren’t always a good sign from a growth perspective, but tech investors have recently hailed layoffs as a necessary step in this new low-growth post-corona world. Bilibili posted an operating loss of $260 million last quarter alone. So the layoff was probably applauded by many as it should have been.
Meanwhile, iQiyi rose even higher. iQiyi said he reported earnings in November, but December had some exciting product launches. iQiyi has released a hot virtual reality game show. memonland It then released its own VR/AR headset called Qiyu in late December.
Apparently, iQiyi’s launch of its own hardware for mixed reality and the metaverse has attracted a lot of excitement as the stock price has surged throughout the month. The product launch follows iQiyi’s November results, which showed profit growth despite a slight decline.
It was impressive that iQiyi was able to turn a profit even with a low revenue, especially since iQiyi is clearly innovative on a low cost basis, as evidenced by Qiyu’s release.
So
Chinese stocks surged on news of China’s resumption of economic activity, but many uncertainties remain. With COVID cases now raging across the country following a sudden change in strategy, it is not clear if China’s troubled economy will bounce back. seemingly, the prospect of over-regulation will remain a looming risk for Chinese tech stocks.
That said, there is certainly room for the upside if China’s reopening continues and the government gets out of the way. China’s tech sector has been in a bear market for more than two years, and December’s rapid rally could gain even more momentum as many companies seek to cut costs and become more efficient. Note that Chinese stocks are now more of a trading potential than a long-term investment given the various political and geopolitical risks associated with investing in China.
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