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Analysts Remain Downbeat on Chinese Internet Stocks
Analysts remain downbeat on Chinese internet stocks. Some analysts cut their price targets for Baidu Inc (BIDU) and Tencent Holdings Ltd (TCEHY), two of China’s biggest tech companies, as the government’s pledge to maintain its strict Covid Zero policy sets up the Chinese economy for continued weakness.
According to Bloomberg data, the average target price of China’s internet search giant Baidu has been cut by more than -8% this month. Also, the target price for online-gaming giant Tencent Holdings Ltd has been cut by -4.6% this month. The Golden Dragon China Invesco ETF (PGJ), which tracks the Nasdaq Golden Dragon China Index, fell to a 7-month low this week and is just above the 9-year low posted back in March.
Pessimism persists for Chinese internet stocks as investors are disappointed by a lack of supportive measures and the unchanged Covid Zero policy voiced during this week’s twice-a-decade Chinese Party Congress. Huichen Asset Management said, “when consumption in China shows little signs of pickup amid Covid Zero, the intrinsic value of these internet stocks will inevitably keep falling.”
This month, at least 17 brokerage firms, including Goldman Sachs and JPMorgan Chase, have lowered their price targets for Baidu and Tencent. They cite many concerns, including slowing growth due to the nations’ strict Covid Zero policy and a weaker yuan that fell to a 14-year low today. The weak yuan is hurting companies earning yuan-denominated revenues and is increasing concern about how these firms will remain profitable.
While Baidu and Tencent Holdings saw the steepest cuts in their price targets, their peers also saw cuts. Bloomberg data shows that analysts reduced price targets on about one-third of the Nasdaq Golden Dragon members this month, with the largest cuts including Weibo Corp (WB), JD.com (JD), and XPeng Inc (XPEV). The revenue outlook for Chinese internet companies looks bleak over the near term.
KGI Asia Ltd said, “it’s hard for the advertising environment to pick up when China sticks to a Covid Zero policy. Even if the government relaxes some restrictions, it takes time for corporations to boost advertisement spending and benefit these internet firms.”
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