China Tech Stocks Rally After Alibaba and Baidu Beat Forecasts

The gains continued Friday in Hong Kong, where the two online behemoths are also listed. The 30-stock Hang Seng Tech Index rose 3.8%, while the broader Hang Seng Index rose 2.9%.

On Thursday, Alibaba reported a higher-than-expected 9% increase in revenue for the quarter that ended in March to the equivalent of about $32.2 billion, thanks in large part to growth in its main e-commerce business. Meanwhile, Baidu reported quarterly revenue that was slightly above last year’s level. Those sales, which also narrowly beat the market consensus, were supported by strong demand for the Chinese search giant’s cloud and artificial-intelligence products.

Alibaba’s results “were better than feared compared with expectations that had become increasingly negative in recent weeks,” Sanford C. Bernstein analyst Robin Zhu and colleagues wrote in a note to clients.

Sentiment toward Chinese tech stocks is shifting, and the latest results were merely triggers for the rally, said Jack Siu, Credit Suisse’s chief investment officer for Greater China. Beijing has sent a clear signal that the regulatory campaign aimed at tech giants and internet platforms is due for a pause, he said.

Last week, Chinese politicians stated support for a stronger digital economy at a meeting with selected tech executives. In April, China’s Politburo—the ruling Communist Party’s top policy-making body—also vowed to roll out policies to support the economy and to wrap up its push to rectify issues at internet-platform companies.

Chinese tech stocks have endured incredibly high volatility, said Frank Benzimra, head of Asia equity strategy at Société Générale. He said an increasingly supportive stance from Chinese officials was being offset by the country’s stringent Covid-19 restrictions, which are weighing on growth and consumer sentiment.

That meant it would be too early to say the tech sector has bottomed, said Mr. Benzimra. “We are out of the woods when we see some sustainable growth in consumption and the economy,” he said.

While Alibaba’s sales rose more than expected, the advance still represented the slowest growth rate since the company was listed in New York in 2014. Alibaba didn’t provide an annual forecast for the current fiscal year, which ends in March 2023, citing unpredictability around Covid disruptions.

Once China’s most valuable listed company, Alibaba’s Hong Kong-listed shares are still down about 23% this year, giving it a market capitalization of around $250 billion. At their peak in the fall of 2020, Alibaba was worth more than $850 billion.

Baidu’s latest gains took its year-to-date decline to about 9%. The Hang Seng Tech Index—which also includes other heavyweights like

Tencent Holdings Ltd.

and

Meituan

—is off 26% this year.

Write to Rebecca Feng at [email protected]