Investors suddenly bullish on China tech stocks are misinterpreting the end of the country’s harsh COVID lockdowns

Is there light at the end of the tunnel for China’s long-suffering tech companies?

The Hang Seng Tech Index—which tracks the 30 largest tech companies listed in Hong Kong—surged 4.6% on Monday and is up 14% for the month.

Tech investors seem to be basing their upbeat outlook on the easing of China’s harsh COVID lockdowns and signals from the government that its regulatory crackdown on Big Tech, which erased billions in market value, is finally drawing to an end.

Shanghai started to ease its two-month lockdown last week, letting residents leave their homes, return to work, and go shopping. And on Sunday, Beijing officials announced that the city’s restaurants and cinemas could reopen, and that schools would restart in-person classes next week.

The national government, perhaps spooked by the struggling economy, has signaled in recent months that it will ease its tech crackdown. Most recently, the State Council said last week that it would support the development of the country’s “platform companies,” referring to the major digital platforms run by China’s Big Tech companies.

That’s encouraged some analysts to renew their confidence in Chinese tech.

In mid-May, J.P. Morgan analysts said Chinese authorities were sending positive signals on regulatory easing “earlier than expected” in a report that upgraded several China tech stocks to “overweight.”

Vincent Mortier, chief investment officer for Amundi, Europe’s largest asset manager, told the Financial Times on Friday that “it’s a good time to come back to the market,” citing the potential easing of the tech crackdown as a reason to pick up China stocks.

“The current weakness in prices is a big opportunity in equities and credit,” he said.

Investors are desperate for good news as both the regulatory campaign and China’s COVID controls weigh on tech earnings. Video-gaming giant Tencent Holdings reported almost zero revenue growth and a 50% decline in quarterly profit in the first quarter of 2022. Alibaba Group Holding, JD.com, and Meituan reported their slowest revenue growth on record over the same period. Sentiment toward the sector was so dour that analysts considered even those bad results “better-than-expected.”

The lockdowns will haunt the country’s Big Tech sector in the second quarter. In the U.S., social distancing led to the rise of “lockdown stocks,” pandemic-era darlings like Netflix, Zoom, and Peloton that boomed as people stayed home. But China’s harsh COVID controls haven’t quite offered the same boost to Chinese tech firms, as locked-down consumers turned to essentials like food rather than discretionary spending. The Hang Seng Tech Index is down 18.8% since the beginning of the year, and even after its recent rally is still only back to the level it was before Shanghai imposed a citywide lockdown on April 1.

Investors should still be cautious. Chinese officials have hinted at ending their regulatory crusade against the country’s technology sector, but Beijing has not introduced any policy changes to back up that rhetoric.

And investors should not expect the consumer spending that fuels the tech industry to immediately rebound now that China has lifted its harshest COVID lockdowns. A 33-point plan that Beijing recently introduced to help revive the country’s economy does not include the kind of stimulus checks that the U.S. handed out, nor does it seek to aid workers who lost their livelihoods in the lockdowns, as Fortune’s Clay Chandler and Grady McGregor noted over the weekend. Even people who held on to their jobs will be hesitant to spend when the specter of new lockdowns—part of Beijing’s “COVID-zero” strategy to eradicate every instance of the virus—looms large.

It’s too bad Beijing has not done more to firmly signal that Big Tech is out of the regulatory doghouse. Short of rolling back its zero tolerance for COVID and rolling out heftier cash handouts, giving the private tech sector a firm vote of confidence is one of the few levers the government could pull to kick-start a faltering economy, as Chandler and McGregor write.

In that case, investor optimism would be more than merited.

Want to send thoughts or suggestions for Data Sheet? Drop Jacob a line here, and you can write to me at nicholas.gordon@fortune.com.

Nicholas Gordon

NEWSWORTHY

An Apple headset? The iPhone maker’s Worldwide Developers Conference (WWDC) starts today, and rumors are swirling about what might be announced. The big question is whether Apple will reveal details about its first-ever headset as the company dabbles in augmented reality. Apple is reportedly reaching out to Hollywood directors like Jon Favreau to create shows for the system. The WWDC runs until Friday. 

$1 billion. Crypto scammers have stolen about $1 billion from over 46,000 people since the start of 2021, estimates the Federal Trade Commission. Over half that money was stolen through fake investment scams, in which con artists promise easy returns to those unaware of how crypto works. Crypto romance scams, where a potential romantic interest asks for cryptocurrency, are also rising in frequency. As the FTC warns, “If an online love asks you to send crypto—or claims they can show you how to make money investing in crypto—pull the plug on your virtual romance.”

Slim 2022 pickings for PlayStation. At its semiannual “State of Play” presentation on Thursday, Sony announced some big names—like Street Fighter 6 and Final Fantasy XVI—as well as promised software support for their next generation VR headset—almost all scheduled for 2023. Gamers are still looking at a light second half of this year, as COVID delays development schedules and release calendars. That disruption—and Sony’s continued struggle to get PlayStation 5 on shelves—may be why Sony’s Spider-Man game will swing on to the PC later this year, as the publisher dabbles in releasing its formerly PlayStation-exclusive games on more platforms. 

Musk passes review. The Tesla CEO’s $44 billion deal to buy Twitter passed a major hurdle on Friday, as the FTC declined to review the potential merger for antitrust concerns. If the commission had chosen to take a closer look, the deal might have suffered months of close investigation. But the biggest hurdle to a deal is likely Musk himself, as he continues to be skeptical of how many bots are on the platform.

Let the sun shine. President Joe Biden plans to invoke the Defense Production Act, which forces companies to prioritize certain products, for solar panel production, reports Reuters. A trade dispute has forced U.S. companies to slow or even freeze solar power projects, hampering the Biden administration’s clean energy goals. Reuters also reports that Biden will waive tariffs on solar panel imports from four Southeast Asian countries. 

FOOD FOR THOUGHT

Caste out. The Washington Post reports that Google canceled a talk by a Dalit-rights advocate in April after Google employees complained the talk was “Hindu-phobic.” Indian society has long been segmented by caste, and tech employees are increasingly reporting that the U.S.—Silicon Valley, in particular—is importing caste discrimination as Big Tech hires more Indians and people of Indian descent. 

Tanuja Gupta, a senior manager at Google News and an organizer of the 2018 Google walkout, invited Thenmozhi Soundararajan, the founder of Equality Labs, a Dalit advocacy organization, to speak on the subject of caste discrimination. Employee complaints drove Google to cancel the talk, and Gupta resigned in protest.

From the article:  

Longtime observers of Google’s struggles to promote diversity, equity and inclusion say the fallout fits a familiar pattern. Women of color are asked to advocate for change. Then they’re punished for disrupting the status quo.

IN CASE YOU MISSED IT

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Bored Ape Yacht Club’s Discord server was hacked, with $360,000 in NFTs stolen. Who’s to blame is debated, by Eli Tan and Coindesk

The Queen waved Sunday during her Platinum Jubilee celebration—but not from her gold state coach. That was a hologram, by Erin Prater

No, you aren’t automatically saving money by working from home. Here’s how much it’s costing you, by Megan Leonhardt

Elon Musk, these experts will bet you $500,000 that you’re wrong about the future of A.I., by Vivek Wadhwa and Gary Marcus

BEFORE YOU GO

China’s crackdown hits the West, too. On Thursday, Amazon’s Chinese social media accounts announced that the e-commerce company was shutting down its e-book store in China. The country used to be a big market for Kindle, making up 40% of total device sales in 2017, according to Reuters. Yet Amazon now trails domestic competitors, like Tencent-owned China Literature, which publishes about 47% of China’s web novels. 

Amazon follows Airbnb, Yahoo, and Microsoft’s LinkedIn in leaving China recently. Strong competition from local companies and new regulations on content and data privacy seem to have altered companies’ perspective on whether the giant Chinese digital market is worth pursuing.