Why Chinese Tech Stocks Kingsoft Cloud, Hello Group, and Vipshop Stocks Were Climbing Today

What happened

Chinese stocks were rallying for the third day in a row as investors continue to see signs, including anti-lockdown protests, that strict zero-COVID policies could come to an end.

There was no single news item driving the sector’s gains, but a continuation of themes that have sent Chinese stocks soaring all month. Some recent news included a reopening in Guangzhou, which followed the lifting of lockdowns in Zhengzhou five days earlier. Chinese authorities are also considering authorizing a fourth COVID-19 shot, which investors see as an alternative to strict lockdown restrictions, and health regulators said it would ramp up vaccinations for the elderly.

That momentum led Hong Kong’s Hang Seng index to record its best month in 25 years, and U.S.-listed China stocks have also been on fire as loosening COVID restrictions, a rescue plan for China’s ailing property sector, and solid results from big tech companies have all lifted shares of Chinese stocks.

After the sector took a beating over the last year and a half, market sentiment seems to be finally shifting on China. Among the winners today were Kingsoft Cloud (KC 18.90%), Hello Group (MOMO 11.70%), and Vipshop (VIPS 10.51%). 

As of 12:37 p.m. ET, Kingsoft Cloud stock was up 11.6%, Hello Group had gained 9.6%, and Vipshop was up 8.5%.

So what

While Kingsoft and Hello Group are still down sharply year to date, Vipshop has bucked the trend in Chinese tech this year, though that may be because the stock had already fallen sharply last year.

However, all of three of these stocks stand to benefit from the reopening.

Vipshop operates a discount e-commerce marketplace and like larger peers including Alibaba Group and JD.com, it’s seen sales slow due to the lockdowns. In the third quarter, revenue fell 13% to $3 billion, though gross profit was nearly flat at $658.3 million, showing margin improvement even as its active customer base fell. Management noted macro and pandemic headwinds, and said it was adapting to uncertain externalities. 

Vipshop stock has soared over the last month as the company beat earnings estimates in the quarterly report, called for a narrower sales decline in the fourth quarter, and got an endorsement from Morgan Stanley.  

Hello Group, which operates the online dating platforms Momo and Tantan, has also seen growth slow recently. In fact, revenue declined 15.3% to $464.4 million, and profits were down as well. Management said, “The COVID resurgence in the first half of 2022 has brought many challenges and uncertainties to the overall market environment and our execution of strategic goals.”

Users declined at both Momo and Tantan, and the company forecast another double-digit decline in revenue for the fourth quarter, though it said that was subject to change due to the impact of COVID-19.

Finally, cloud computing company Kingsoft Cloud has seen its stock tumble more than 80% this year as it’s struggled with the sluggish economy. Revenue fell 18% to $276.8 million with sales in its public cloud business down 20%. Gross margin was also just 6% due in part to the impact of its acquisition of Camelot, an IT services company, last year.

Like its peers, Kingsoft Cloud is seeing a direct impact from the COVID-19 pandemic as it said it was the main reason for the decline in its enterprise cloud business.

Now what

China is still a long way from a full-on economic reopening and some analysts don’t expect that for at least a few more quarters. The protests earlier this week also make it clear that some of the population believe the lockdowns are too strict.

However, market sentiment has already shifted in favor of reopening and stocks like the ones above should continue to move higher on more signs of reopening. Considering how far some of these Chinese tech stocks have fallen, the upside potential in a recovery is considerable.