Hong Kong stocks retreat from one-month high as UBS warns of earnings risks, Alibaba suffers price-target cuts

·3-min read

Hong Kong stocks fluctuated, amid concern this week’s rebound in Chinese tech companies was excessive as UBS warned of triple risks to corporate earnings.

The Hang Seng Index was little changed at 23,739.06 at the close of Tuesday trading. It had earlier climbed as much as 0.5 per cent to a one-month high. The Tech Index lost 0.1 per cent, while China’s Shanghai Composite Index retreated 0.7 per cent.

Alibaba Group Holding, the owner of this newspaper, fell 1.6 per cent while Xiaomi lost 1.9 per cent and NetEase slipped 0.4 per cent. The tech index had accumulated 5.5 per cent of gains since a late Thursday rebound, adding at least US$133 billion in value along the way.

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China’s tech sector faces a triple whammy in the form of weak consumer spending, slowing economic growth and tough regulatory pressures in 2022, Felix Liu, an analyst at UBS Securities said. Odds of sharp earnings contraction in the next 12 months are as high as 70 per cent, according to BCA Research.

“It is still early to tell if this round of gains are here to stay as the recovery remains concentrated in weaker stocks,” said Stanley Chik, research director at BrightSmart Securities, said in a note on Tuesday. “Continued Covid-19 outbreaks in Hong Kong and mainland China also add to economic pressures.”

Hong Kong is battling an Covid-19 outbreak of late involving the more transmissive variant, with 24 cases confirmed Monday, five of them local. In mainland China, an outbreak in Xian has necessitated weeks of lockdown while new cases emerged in southern Guangdong province.

Alibaba dragged down the index as its chairman and group CEO Daniel Zhang resigned from the board of Weibo on Monday, according to an exchange filing, replaced by chief marketing officer Pen Hung Tung.

Alibaba has sold some of its media interests in recent months, including the Mango TV network. Besides, analysts at Citigroup, Nomura, Daiwa Capital, Benchmark and Atlantic Equities have trimmed their price targets for Alibaba’s Hong Kong and US-listed shares over the past month, according to Bloomberg data.

Weibo slid 2.1 per cent to HK$259.60, taking the setback to 4.8 per cent since the Chinese Twitter-like social-media service went public on December 8.

Major markets in Asia-Pacific retreated on Tuesday. Japanese stocks fell 0.9 per cent while equities in Australia lost 0.8 per cent.

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