SEOUL (BLOOMBERG) - Alibaba Group Holding's US-listed shares slipped after China's regulator denied a Bloomberg News report that it had started early-stage discussions on reviving the initial public offering (IPO) of billionaire Jack Ma's Ant Group.

Shares of the e-commerce giant dropped 8.1 per cent on Thursday (June 9), after shooting up around 7 per cent in pre-market trading on the Bloomberg report. The stock quickly erased earlier gains after the China Securities Regulatory Commission said it was not conducting work on reviving the Ant IPO, although it supported eligible Internet platform companies listing in China and overseas. Meanwhile, Ant said it had no plans to initiate an IPO.

Other United States-listed Chinese stocks also fell, sending the Nasdaq Golden Dragon China Index down 6.8 per cent, snapping a three-day rally of 15 per cent. Nio and Bilibili were among the worst performers, declining 7.7 per cent and 15 per cent respectively. Restaurant operator Yum China Holdings lost 8.1 per cent amid news that Shanghai has put part of the city back into lockdown as cases return.

A restart of Ant's IPO is "too good to be true" and "there are a lot of questions to be answered on the political side", said Mr Xiadong Bao, an emerging-markets fund manager at Edmond de Rothschild Asset Management. While Alibaba's stock still looks cheap after the recent rally, more patience is needed before further improvements on fundamentals, he said.

Bullish calls are returning to China's tech sector amid signs that regulators are taking a more lenient line after more than a year of regulatory squeeze. Chinese stocks have staged strong rallies in Hong Kong and New York this week following news of a likely wrap-up of a probe into Didi Global and a slew of new game approvals.

The sudden scuttling of Ant's IPO in November 2020 - just days before the fintech juggernaut was to go public - marked the beginning of China's hallmark regulatory crackdown that has swept across the country's Internet sector. The crackdown has seen foreign investors flee and the sector labelled "uninvestable". Alibaba owns about a third of Ant.

"We were only saying a few days ago that if Ant was rehabilitated, it would mark a major positive. This, in a sense, was where the trouble started," said Mr Gary Dugan, chief executive officer of the Global CIO Office. "If true, it would be very good news and a major potential turning point for the China tech sector and broader Chinese markets."

Bullish pivot

While many strategists started to turn bullish from late 2021, citing cheap valuation and expectations of a better policy environment, a sustainable rally had seemed elusive, with rebounds barely lasting a few days. Goldman Sachs Group and Jefferies Financial Group had been among the early believers of a China turnaround, only to see the Hang Seng Tech Index slide to new lows.

Sentiment took a turn for the better in mid-March this year, when China's economic czar - Vice-Premier Liu He - promised to swiftly end tech scrutiny, stabilise financial markets and deploy measures to prop up the economy. While the pledges initially seemed to ring hollow with no concrete action, increasing signs are pointing to a softening in the country's stance towards Internet firms.

The Ant news "is a sign that regulators are following through on their pledge to end the crackdown on tech platforms, which will continue to improve sentiment on the sector", said Bloomberg Intelligence analyst Marvin Chen. "A potential revival of the Ant IPO may also help support financial markets in the region as fund-raising activity has dried up this year."

One big market overhang, though, still remains - China's Covid-19-zero policy. Having earlier moved to lift lockdowns in Shanghai and reopen Beijing's economy, partial movement restrictions are returning as the authorities remain determined to stamp out the highly transmissible Omicron virus.

Still, the number of strategists and money managers saying it is time to buy China has been growing by the day, with even the most bearish participants seeing opportunities, at least for the short term.

Various market indicators also suggest that the nascent rally in both local and overseas-listed Chinese shares may have further momentum, partially aided by the lifting of  lockdowns in Shanghai and Beijing. The tech gauge in Hong Kong has breached its 50-day and 100-day moving averages, key technical hurdles that indicate more gains may be in store.

The market might be reading too much into the news flow around the potential revival of Ant's IPO, but the Chinese government has clearly become more supportive of the Internet sector, according to Ms Jian Shi Cortesi, a portfolio manager at GAM Investment Management.

"The regulation risk has peaked, but most investors need more and more confirmation of that," she said.