Chinese tech giants such as Alibaba Group Holding Ltd. (NYSE:BABA), JD.com Inc. (NYSE:JD) and Tencent Holdings Limited (OTC:TCEHY) have all come off their lows, raising hopes for a turnaround.
These companies may not be out of the woods yet, Bloomberg reported, citing industry sources.
Regulatory Crackdown Likely to Resume: Tech industry insiders indicated that the superlative growth of the past two decades could likely be a thing of the past.
One of the respondents suggested that the regulatory crackdown, which has seen a let-up recently, could come back in full force soon.
There has been a definitive thawing of the hostile regulatory stance:
- Alibaba affiliate Ant Financial is likely to be allowed to proceed with the stalled initial public offering
- Regulators have approved several video games
- DiDi Global Inc. (OTC:DIDIY) was fined after the ride-hailing giant defied the Cyberspace Administration of China, and went public
Related Link: Why JPMorgan Is Doubling Down On Alibaba, JD And Other Chinese Tech Stocks This Year
"The regulatory pressure on Chinese tech companies may have hit the brakes for now, given the sluggish economy, but it's unthinkable that regulators in the country would loosen their grip on platform companies ever again," one source told Bloomberg.
Companies Ill-Equipped: Although regulators have begun easing restrictions, tech companies are handicapped to take advantage of the relaxations. Baidu Inc. (NASDAQ:BIDU) is now allowed to release new games, it is not able to capitalize because it has wound down development and publishing divisions and downsized staff, it added.
The fact that Alibaba stock is still trading way off its late-2020 peak is testament to the fact that investors aren't pricing in a return to the pre-crackdown boom, the report continued.
Given that China has a habit of clamping down just ahead of important events, the upcoming Communist Party congress, where President Xi Jinping is widely expected to be elected for a third term, is creating some nervousness, the report suggested.
In premarket trading Friday, Alibaba stock was advancing 3.09% to $115.57, according to Benzinga Pro data.
