Technology stocks fell sharply earlier, and despite a slight rebound in individual shares on Friday (26), data suggest that there is still room for further downside for such stocks.
Foreign news reports, Tencent Holdings (00700), Alibaba (09988), Baidu (09888) and other first Chinese technology companies to enter the stock market valuation, the current than the last two sharp pullback when the trough level is still much higher. Based on expected earnings over the next 12 months, the data show that the average price-to-earnings ratio for these companies is still as high as more than 20 times today, which is comparable to the three-year average. Their average P/E ratios had dropped to 19x and 18x in March 2018 and 2020.
Jay Wen, a strategist at Everbright Sun Hung Kai Wealth Management, believes that while some investors are buying back into such stocks, it is still too early to say that the downtrend has come to an end. He added that there are still many uncertainties, such as bond yields may continue to climb, the mainland government may still introduce more tightening regulatory measures, and the risk of delisting the U.S. stock market is also a possible scenario.
Jackson Wong, director of asset management at Amber Hill Capital Ltd. said he would be selective and cautious in buying these technology stocks, as investors need to further confirm whether this is a real rally or just a temporary one, as the outlook remains uncertain.
In fact, Tencent and Xiaomi released notable results last Wednesday (24), but also failed to bring a boost to the stock price. Tencent shares fell 2.8% last Thursday (25), while Goldman Sachs, Macquarie and other brokerages lowered their target prices; Xiaomi shares fell even after a sharp increase in quarterly profits.
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