Brutal China Tech Giants Selloff May Not Yet Be Done

(Bloomberg) -- China's technology stocks are back in oversold territory, with a gloomy outlook suggesting the selloff may not yet be done.

A three-day, 8% plunge has sent the Hang Seng Tech Index into the oversold zone for the first time in more than two months, as investors dumped the sector amid earnings shocks and the escalating war in Ukraine.

Some of the country's biggest technology firms, including gaming giant Tencent Holdings Ltd. and mobile-phone maker Xiaomi Corp have dropped to or near territory oversold territory, Bloomberg data shows. A drop in the 14-day relative strength index below 30 is traditionally seen as a signal to technical analysts that a security has fallen too far, too fast.

History shows the index rose by an average 2.8% in the week after dropping into the oversold zone. However, even as technical indicators look more favorable, investors will have to bear the risks of a weak earnings outlook and a global flight to safety. With the Ukraine war in focus and the Federal Reserve having turned more hawkish, buying into the shares remains risky.

“It's very hard to say the selloff is overdone,” said Willer Chen, analyst at Forsyth Barr Asia Ltd. “Fundamentally speaking, they all have very dim growth outlook, with ads getting hit due to macro,” delays with gaming license approvals and fierce e-commerce competition, he said.

The Hang Seng Index tech gauge has lost 56% since peaking in February last year. Despite being valued like a utility stock already, Alibaba Group Holding Ltd. slumped to fresh record low after reporting the slowest quarterly revenue growth. Video platform operator Bilibili Inc. declined after weaker-than-expected guidance.

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Some U.S. tech stocks are also trading at a steep discount, led by Facebook-owner Meta Platforms Inc. A dismal earnings update and slowing user growth for its flagship social media platform has eroded more than $500 billion in market value since last September's peak.

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