HONG KONG (BLOOMBERG) - China's technology giants have had their earnings estimates slashed for a second straight month amid the nation's relentless pursuit of its Covid-19-zero strategy.
Analysts trimmed profit projections for Hang Seng Tech Index members by 4 per cent in April, following a similar reduction in March, according to data compiled by Bloomberg. Among their reasons was the prospect for further Covid-19 flare-ups in the world's most populous nation.
The escalating concerns over Covid-19 are adding to a raft of challenges facing China's technology sector. These include more than a year of regulatory crackdowns, Federal Reserve interest rate hikes that are luring capital away from riskier assets, and speculation that more of the firms may lose their United States stock exchange listings.
Among the companies suffering the biggest earnings downgrades, travel booking platform Trip.com has had its 12-month forward earnings estimates cut by 8.2 per cent, while those for Alibaba Group Holding and Baidu have been reduced by 4.2 per cent and 8.1 per cent respectively.
"After the sustained regulatory tightening, the Covid-19 resurgence in recent months and the stringent zero-Covid-19 policy are likely to exacerbate a slowdown in revenue growth for a number of companies, particularly the Internet ones," said Ms Jessica Tea, investment specialist at BNP Paribas Asset Management Asia in Hong Kong. "Slower sales are likely to impact future profits, translating into shrinking earnings expectations."
The 30-member Hang Seng Tech Index has slumped 11 per cent this month, extending its 2022 loss to 28 per cent, as worsening coronavirus outbreaks in China's biggest cities overtook earlier optimism over Beijing's pledge in March to boost the economy and end tech crackdowns. US-listed shares of Baidu have fallen 9 per cent in April, while those of Alibaba slumped 16 per cent.
Shanghai has been largely locked down since early April, while Beijing and Hangzhou - home to many technology giants - are also at risk of seeing tougher movement restrictions due to Covid-19 outbreaks.
"Technology companies are directly impacted either through supply chain disruptions or household and business spending," said Mr David Chao, global market strategist for Asia-Pacific ex-Japan at Invesco Hong Kong. "The sector's earnings trend is directly linked to how the authorities evolve existing pandemic policies."
Still, the current bearish sentiment may mean that the technology sector will be one of the first to rebound once the economy starts to reopen, Mr Chao said.
The effect of Beijing's promised stimulus is yet to be widely felt. Online retail sales grew a meager 0.5 per cent from a year earlier in March, almost 10 percentage points less than that seen in January and February this year.
China International Capital said the dramatic slowdown may result in companies posting weaker results for the first half, while Barclays has warned about risks to Baidu's search engine advertising business due to the extended lockdown measures in Shanghai.
