China’s internet companies entered bear territory long before the rest of the world’s stocks tanked early this year. Regulators in Beijing began a crackdown on domestic tech firms late in 2020, crushing the market cap of many of the country’s leading firms over 50%. But investors are cautiously eyeing an exit from the downturn this week after China’s economic czar, Vice Premier Liu He, met with the country’s most prominent tech CEOs to assure them the worst was over.
Tech stocks rallied earlier in the week, in anticipation of the Tuesday meeting between He and China’s major tech leaders, including CEOs like Baidu’s Robin Li and NetEase’s William Ding. The Hang Seng Tech Index, which tracks the 30 largest HK-listed tech companies including Alibaba Group Holding, Meituan and JD.com, surged by 5.7% on Tuesday.
Positive sentiment continued into U.S. trading hours, with the NASDAQ Golden Dragon Index increasing by 5.2%. But investors were apparently let down by He’s comments. Despite the vice premier’s encouraging remarks, stocks fell again in Hong Kong trading on Wednesday morning.
During his Tuesday meeting, China’s Vice Premier said that Beijing would encourage the further development of digital platforms, and that regulators would try to “properly manage” the relationship between the government and the market. China’s Vice Premier also said that Beijing would support more public listings of China’s tech companies, both domestically and overseas.
The flow of Chinese IPOs in the U.S. has slowed dramatically since Didi’s IPO fiasco last June, after Chinese cybersecurity regulators cracked down on the ride-hailing company days after its New York trading debut. The U.S. Securities and Exchange Commission is also flagging U.S.-listed Chinese tech companies like JD.com and NetEase for delisting due to a fight over access to their financial records.
Underwhelmed by He’s remarks, the Hang Seng Tech Index fell 0.6% by Wednesday 3:00pm, local time. Alibaba shares were down 1.3%, Tencent Holdings fell by 1.5%, while JD.com sank 1.5% by 3:00pm.
He’s comments come as investors search for evidence that Beijing may be easing up on its crackdown. Over the past 18 months, Chinese regulators have passed new regulations and imposed fines on numerous sectors, including video gaming, education, ride-hailing and food delivery.
China’s regulatory crackdown has spurred investors to dump their shares. The Hang Seng Tech Index and the NASDAQ Golden Dragon have both fallen by around two-thirds since their peaks in Feb. 2021. Markets remain so skittish that investors briefly dumped $26 billion worth of Alibaba shares on May 3 after CCTV reported the arrest of someone sharing the last name of company founder Jack Ma.
Tuesday’s meeting also isn’t the first time He has suggested the crackdown might be over, which is perhaps why markets remain cautious. In March, China’s economy czar reassured investors that Beijing would introduce “policies that are favourable to the market.” Those policies have yet to appear.
Yet analysts are starting to think the tide may be turning after China’s COVID controls are becoming a significant drag on its economy.
JPMorgan upgraded shares in companies like Tencent, Meituan and NetEase on Monday to “overweight”, predicting that stock prices could outperform the sector average. JPMorgan analysts noted that “significant uncertainties facing the sector should begin to abate on the back of recent regulatory announcements,” noting that positive statements from Chinese authorities were coming “earlier than we expected.”
JPMorgan had earlier called Chinese tech stocks “uninvestable” in a report that sparked a sell-off that erased $200 billion in equity markets. On May 10, Bloomberg reported that JPMorgan’s use of the term “uninvestable” was an editorial error. The term was meant to be replaced with “unattractive”, but had snuck through in a few drafts.
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.