(Bloomberg) — Alibaba Group Holding Ltd. led Chinese technology shares higher on Thursday as investors repositioned ahead of quarterly results, although investors remained cautious about a number of potential headwinds ahead.
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Shares in the e-commerce giant rose as much as 6.5 percent in Hong Kong, among the best performers on the Hang Seng Tech Index, which advanced as much as 3.4 percent. Stocks are on track for a second day of gains after US House Speaker Nancy Pelosi’s visit to Taiwan sent broader markets tumbling this week.
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The tech recovery comes as investors have started to add back exposure after previously pricing in too much risk, according to Wei-Sern Ling, managing director of Union Bancaire Privee in Singapore. An overnight rally in Chinese ADRs also provided a boost, he added.
Investors will be focused on Alibaba’s future direction when the firm reports after hours, especially after China’s harsh second-quarter Covid lockdowns hampered growth. Concerns about a slowing economy, continued regulatory crackdowns and heightened Sino-US tensions also complicate this outlook.
Even with the two-day bounce, Alibaba is still down more than 20% this year in Hong Kong, tracking the Hang Seng Tech Index. SoftBank Group Corp. has raised as much as $22 billion in cash by selling forward contracts using Alibaba shares, the Financial Times reported, which would increase selling pressure in the future if SoftBank chooses not to buy back Alibaba shares.
Here are three charts showing the obstacles facing Alibaba stock:
Analysts expected Alibaba’s April-June sales to fall 0.9 percent from a year earlier, marking its first-ever quarterly revenue contraction. Some analysts are also focusing on cost-cutting measures and investment spending plans in the company’s results.
Daiwa Capital Markets sees a bigger sell-off as core trading could “take a hit from supply chain disruptions in April-May,” analysts including John Choi wrote in a note last month.
Alibaba’s decline of more than 21% from its July peak has put the stock near technically oversold territory. Shares fell below both the 50-day and 100-day moving averages, which provided some support. A new regulatory penalty for past deals, a reported data breach investigation and a soft macro economy sent shares tumbling. News that co-founder Jack Ma plans to cede control of Ant Group also created uncertainty.
Investors are trying to gauge how much Alibaba’s business can recover in the coming quarters after China began easing quarantine rules and pledged to support the economy. Geopolitical tensions and global recession worries halted a recent surge in analysts’ earnings estimates, sending the company’s 12-month forward earnings forecast back to 2019 levels.
(Updates with more background)
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