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Signals of a possible earnings recession triggered negative reaction among Chinese tech stocks, sending them lower for the second straight session Wednesday.
The Guggenheim China Technology ETF (NYSE:CQQQ), which consists of 60 Chinese tech companies, shed 4.6 percent Tuesday and was down nearly 5 percent at the time of publication Wednesday.
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What Happened
The sharp drop in shares of Chinese tech stocks could be traced to dismal quarterly earnings reports from a few companies as well as weak Chinese retail sales in July.
Livestreaming platforms YY Inc (ADR) (NASDAQ:YY) and HUYA Inc – ADR (NYSE:HUYA) as well as Vipshop Holdings Ltd – ADR (NYSE:VIPS), which operates the ecommerce website VIP.com, reported Monday after the close with disappointing quarterly results.
Notwithstanding the forecast-beating results, YY issued below-consensus Q3 revenue guidance.
Huya reported in-line Q2 EPS but issued weak Q3 revenue guidance.
Vipshop's Q2 EPS trailed estimates, and Citigroup subsequently downgraded the stock and lowered its price target on the shares.
Chinese internet giant TENCENT HOLDING/ADR (OTC:TCEHY) reported its first quarterly profit drop in about 13 years, as a government clampdown on its gaming business hurt revenues.
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Apart from company-specific factors, macro concerns also weighed down on the stocks, as the Chinese National Bureau of Statistics reported year-over-year retail sales growth of 8.8 percent, down from the 9-percent run-rate in June.
Why It's Important
Even as U.S. tariff fears remain an overhang, domestic consumers were expected to bail out the economy, and lukewarm retail sales data therefore acted as a dampener.
The potential slackening of corporate profit growth could have a cyclical effect on the economy. Smaller profits would mean less spending by corporations and slower growth in wages and salaries, which in turn could hurt consumer spending, the mainstay of most economies.
What's Next
Even as investors show a knee-jerk reaction, they are likely to look for more clues from upcoming earnings reports in the sector:
- JD.Com Inc(ADR) (NASDAQ:JD) is scheduled to report Thursday, Aug. 16 before the open.
- Bilibili Inc – ADR (NASDAQ:BILI) is due to report Monday, Aug. 27 after the close.
- Uxin Ltd (ADR) (NASDAQ:UXIN) will release quarterly results Wednesday, Aug. 22 before the open.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.