Alibaba jumps as much as 6.5% amid tech rally ahead of earnings

Alibaba jumps as much as 6.5% amid tech rally ahead of earnings

Alibaba jumps as much as 6.5% amid tech rally ahead of earnings

(Bloomberg) — Alibaba Group Holding Ltd. led Chinese tech stocks higher on Thursday as investors repositioned ahead of its quarterly results, although caution remained over some potential headwinds.

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Shares in the e-commerce giant gained as much as 6.5 percent in Hong Kong, among the best performers on the Hang Seng technology index, which rose as much as 3.4 percent. The stock is on track for a second day of gains after US House Speaker Nancy Pelosi’s visit to Taiwan sent broader markets lower this week.

Strategists fear Pelosi’s trip will have a deeper impact on the global market

The rebound across tech comes as investors began to increase exposure after pricing in excess risk earlier, according to Vey-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 laser-focused on Alibaba’s future guidance when the company reports after hours, particularly after China’s tough Covid lockdowns during the second quarter slowed growth. Concerns about a slowing economy, an ongoing regulatory crackdown and heightened Sino-US tensions also complicate this outlook.

Even with the two-day recovery, Alibaba is still down more than 20% this year in Hong Kong, tracking the Hang Seng Technology Index. SoftBank Group Corp. has raised up to $22 billion in cash through the sale of futures contracts using Alibaba shares, the Financial Times reported, which will increase selling pressure down the road if SoftBank chooses not to buy back Alibaba shares.

Here are three charts that show the obstacles ahead for Alibaba stock:

Analysts expect Alibaba’s April-June sales to fall 0.9 percent from a year earlier, marking its first quarterly revenue contraction. Some analysts are also focusing on cost-cutting measures and investment spending plans on the company’s results.

Daiwa Capital Markets sees a bigger sales decline as core trade may be “hit by supply chain disruptions in April-May,” analysts including John Choi wrote in a note last month.

Alibaba’s more than 21% decline from its July high has pushed the stock close to technically oversold territory. Shares have fallen below both the 50-day and 100-day moving averages, which provided some support. A new regulatory sanction on earlier deals, a reported investigation into data leaks and a soft macro economy have sent the stock lower. News that co-founder Jack Ma planned 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 worries about a global recession stymied a recent rise in analysts’ earnings forecasts, sending the company’s 12-month earnings estimate back to 2019 levels.

(Updates with more background)

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