Tencent and Alibaba’s earnings will determine the longevity of China’s stock rally

Chinese stocks are on the rise, but the sustainability of this upward trend hinges on the upcoming earnings reports from tech giants Tencent Holdings Ltd., Alibaba Group Holding Ltd., JD.com Inc., and Baidu Inc. These companies collectively represent more than a quarter of the MSCI China gauge, making their performance crucial for the overall market.

Investors are eagerly awaiting the earnings results, with Tencent expected to report a 6% increase in revenue and Alibaba predicted to see a 5.6% rise in sales for the quarter through March. However, early earnings data from Chinese firms have been mixed, with some delivering disappointing results.

Despite the recent rally in Chinese stocks, concerns remain about technical overbought signals and pressure on corporate earnings. Analysts warn against chasing the rally at the index level, citing the need for sustainable sales growth to support the market’s momentum.

Tech companies have been a bright spot in boosting profits, with forward earnings estimates for Chinese tech firms climbing about 20% in 2023. The sector remains relatively cheap compared to historical averages, but investors are looking for signs of consistent sales growth rather than just cost-cutting measures.

Overall, the upcoming earnings reports will be a litmus test for the resilience of Chinese stocks and the tech sector in particular. Investors are hoping for positive results to sustain the market’s momentum and drive further gains in the coming months.