China tech stocks rebound after Tencent stock buyback and strong JD.com results

Shares of Tencent, China's biggest company by market value, rose as much as 5 per cent. PHOTO: REUTERS

HONG KONG (Bloomberg) - Chinese technology stocks rallied for a second day, as sentiment was boosted by Tencent Holdings' stock buyback and as star fund manager Cathie Wood bought back into JD.com after a strong set of results.

The Hang Seng Tech Index rose as much as 5 per cent, adding to Monday's (Aug 23) 2.1 per cent gains, after falling for five straight weeks to the lowest level since its July 2020 inception on Friday. The gauge has been trapped in a technical bear market since the first week of March and plunged into so-called oversold territory last week.

Traders jumped back into battered Chinese tech stocks, which have been targeted by a slew of new rules, after JD.com reported quarterly sales that beat estimates and Ms Wood's Ark Investment Management bought back American depository receipts of the company on Monday.

Tencent's move to continue purchases of its shares also instilled some confidence.

"We are seeing lots of bottom-fishing activities in the market, including strong buying of Tencent and Alibaba," said Mr Jackson Wong, asset management director at Amber Hill Capital.

"Companies that have fallen the most and prove to have solid fundamentals will lead the rebound."

Shares of Tencent, China's biggest company by market value, rose as much as 5 per cent, while its rival Alibaba Group Holding, which dropped to a record low in Hong Kong on Monday, gained as much as 5.7 per cent.

JD.com, a Chinese e-commerce giant, jumped as much as 11 per cent, the most since July 29, after its second-quarter revenue beat average analyst estimates.

While investors are still concerned about regulations, earnings such as those from JD.com "have partly offset some of the worries", said Mr Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

"Valuations look appealing if investors want to hold for six months or longer."

The Hong Kong benchmark tracking the biggest technology stocks in China has lost more than 40 per cent since a February peak as Beijing conducted a sweeping crackdown on private sectors to reduce inequalities in the world's second-biggest economy.

MSCI Inc, the world's biggest index provider, shook off concerns about the "investability" of Chinese stocks, citing previous instances where markets rebounded in the aftermath.

Regulatory compliance has weighed on China "every three, four, five years and obviously, the markets have sold off at the time", MSCI chairman and chief executive officer Henry Fernandez said in an interview on Bloomberg Television.

"But very quickly afterwards, the markets have recovered and gone through to new heights," he added.

Some investors have taken the opportunity to buy during the sell-off. Veteran fund manager Hugh Young of Aberdeen Standard Investments said earlier this month that his firm bought the dip in Tencent and kept most of its other big-tech holdings largely unchanged.

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