Is China tech a bargain?

Hi all, this is Zheping in Hong Kong. Investors are eyeing a turnaround in China tech, after two years of brutal suppression from Beijing. B [View in browser]( [Bloomberg]( Hi all, this is Zheping in Hong Kong. Investors are eyeing a turnaround in China tech, after two years of brutal suppression from Beijing. But first... Today’s must-reads: • Despite its universal use, Zoom Video Communications Inc. had its [slowest quarterly sales growth]( to date • Carl Icahn has a [large short position]( in GameStop Corp. • Tesla Inc. shares hit a new [two-year low]( while the boss is focused on Twitter Spurts of optimism Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are having their best month in a long time, with their shares surging by double digits several times in November on newfound investor optimism about China’s economy. Among the sprouts of hope, Xi Jinping’s government is finally easing up on its Covid-Zero playbook and US-China relations took a small but symbolic step toward rapprochement when Xi met American leader Joe Biden in Bali. But will this uplift in sentiment last? The September-quarter results for China’s internet giants were not pretty. Tencent’s domestic games sales remain in deep contraction, Alibaba posted a deeper-than-feared drop in its bread-and-butter merchant fees, and it was in fact smaller foes NetEase Inc. and JD.com Inc. that fared better. And concern is spreading about Beijing [backtracking]( just days after signaling an easing of Covid rules. Let’s also not forget Xi’s “common prosperity” agenda — the cornerstone of a campaign to curb the influence of powerful tech firms and force them to share the wealth. The mantra, used to rationalize the 2021 tech crackdown, [roared back]( with a vengeance Tuesday when JD.com and its billionaire founder pledged to slash executives' salaries and use that to partly fund $1.4 billion of employee benefits — a stark reminder of how Xi's policies can whipsaw investors and China's biggest corporations. Everyone’s trying to time the bottom of China’s tech market. These latest bets suggest increasing confidence that it’s behind us. Certainly, China appears to have moved past the worst of its pandemic woes and tech crackdown — but where exactly it is on its trajectory out of the doldrums is much less clear. For months, the bulls have argued that Chinese internet stocks have become too cheap an investment to miss -- just look at Alibaba’s 12 times price-to-earnings ratio versus Amazon.com Inc.’s 93. At the same time, bearish investors have already shifted their money to sectors more favored by Beijing, such as semiconductors, electric cars and bubble-tea chains. (Sorry, TikTok and Honor of Kings, it’s all about the real economy.) The nuts and bolts of Chinese tech earnings do give some cause for optimism, but it’s all about scaling down: cost cuts, margin improvements, and limits on investments that don’t promise immediate payoff. The effervescent topline growth of the past decade has given way to a more sober focus on profitability. Before we can declare China’s tech sector revival, the government has a number of issues to resolve. Didi Global Inc. is still not freed from a download ban for its app; Jack Ma’s Ant Group Co. is working through a regulatory overhaul before it can go public; and Tencent and other game creators have a large backlog of games that still require licenses to start making money. Since at least May, top Beijing officials have [signaled]( a friendlier stance toward the internet sector, but they haven’t provided many concrete policy steps over the past six months. Investors and analysts are divided in their outlooks and uncertain about where the next growth engine in the internet space may emerge. Many of those I’ve talked with point to two products: WeChat Video, which is the TikTok-style feed inside Tencent’s super-app, and Temu, the entry into US e-commerce by Shanghai-based Pinduoduo Inc. There’s a notable absence of fresh startups on China tech watchers’ shortlists. That might explain the funneling of optimism into the big established names. But it also hints at a dearth of the sort of fast-scaling innovation required to supercharge company valuations. —[Zheping Huang](mailto:zhuang245@bloomberg.net) The big story Layoffs across the tech industry are hitting US visa holders hard, giving them only [a limited time]( to find new jobs or be forced to leave the country. Get fully charged Digital-asset brokerage Genesis is struggling to [raise fresh cash]( for its lending unit in the wake of the FTX debacle. Former Walt Disney Co. leader Bob Iger is stepping back in, [replacing his successor]( Bob Chapek as CEO, in a surprise capitulation by the board after a string of disappointing results. Intel Corp.’s turnaround plan stuttered, as executive Randhir Thakur [stepped down]( from his position heading up the company’s push into contract chip manufacturing. Follow Us More from Bloomberg Dig gadgets or video games? [Sign up for Power On]( to get Apple scoops, consumer tech news and more in your inbox on Sundays. 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