This article was co-authored by Wei Sheng.
China’s tech stocks have dropped sharply since Jan. 13, when an epidemic disease known as novel coronavirus went global. On Tuesday Feb. 3, they started to recover, but most have a long way to recover from January losses.
E-commerce giant Meituan Dianping opened at HK$109.20 (about $14) on Jan. 13, dropped to HK$99.50 by the end of the day Feb. 3, and has climbed back to HK$100.50.
The stock rise coincided with a strong monetary boost from Beijing on Tuesday. The People’s Bank of China injected RMB 400 billion (about $57 billion) of liquidity to the banking system and strengthened the yuan exchange rate to support the economy.
The liquidity injection was the largest in the past year, sending a strong message to markets that the government will support the Chinese economy during the virus outbreak.
Manufacturers of surgical masks, now widely used and sometimes mandated in China for protection against airborne viruses, have seen a surge in share prices. Stock for three Chinese firms TechNode analyzed have gained 40% in share price since Jan. 13, indicating that investors expect a prolonged health crisis.
But things are looking up this week in tech. Stocks on Shanghai’s tech board started to climb on Tuesday, gaining back on the past few weeks’ losses. The benchmark SSE Composite Index, in which the STAR Market is listed, has gained close to 3% since Tuesday.
China’s Nasdaq-style STAR Market has been on a roller coaster ride after it reopened on Monday. Most shares dropped during the first day of trading after the week-long break with 43 out of 79 listing companies seeing their share prices reach the tech board’s daily limit of 20% downside.
E-commerce bounceback
The e-commerce sector has been hit the hardest among those analyzed, as expectations for consumption were low in the past few weeks. Share prices of the six companies TechNode analyzed saw a 9.4% decrease on average until Feb. 3, and have since won back 5.4%.
Millions of people are staying at home this week due to obligatory work-from-home policies, adding on the fact that fears of the virus spreading is running high. But fear of the virus might prove beneficial for e-commerce companies.
“Alibaba and Meituan’s share prices dipped slightly, but are now on an upward trajectory, as investors price in how important e-commerce will be over the coming months,” Michael Norris, leader of research and strategy at AgencyChina, told TechNode.
Cities across China have ordered entertainment venues to shut down and shopping malls to take strict entry measures during the Spring Festival break which went from Jan. 23 through Feb. 2 after a last-minute extension.
“Over the coming weeks, the default for many folks’ consumption will be e-commerce,” Norris said. E-commerce and delivery platforms have already implemented “no-contact delivery,” meaning the delivery driver doesn’t come in person with the person receiving the goods. This scheme meets consumer desires and “the stock market has responded positively to these developments,” Norris said.
Luckin Coffee shares have dropped by 29%, from $44.17 on Jan. 13 to $31.35 on Feb. 3, the biggest drop among the companies analyzed. On Saturday, the US investment firm Muddy Waters delivered a further blow to China’s largest coffee chain, saying that it believes the company is inflating sales numbers. Luckin Coffee stock has increased by 24.56% this week, recovering to $39.05.
Shoppers going online
Smartphones and telecommunications companies have also seen a drop. The five companies TechNode analyzed showed a 2.3% decrease since Feb. 13.
“We predict the overall smartphone shipment in China to drop by 15% to 20% year on year in the first quarter,” said Fang Jing, chief analyst at Cinda Securities, a Beijing-based investment firm.
The drop is attributable to the government’s calls remain during the Spring Festival holiday in an effort to contain the spread of the virus, Fang said.
The holiday is usually considered a barometer of Chinese private consumption because of the traditions of gift-giving and family reunions. However, fears of the deadly coronavirus that has killed 491 people and sickened 24,363, based on official data, have kept shoppers away from the streets.
“We have seen shipments of smartphones through offline channels drop by 70% during the Spring Festival holiday,” said Fang. “If the situation is not going to take a turn for the better, the percentage will likely increase.”
Instead, people are going online for electronics consumption. Online shipments of smartphones are expected to account for as much as 40% in the first quarter, Fang said, adding that the proportion was only 28% in the same period last year.
With a small store footprint, Xiaomi relies on online sales, which makes it a strong contender for the coming months when e-commerce will become an even bigger pillar of consumption. Its stock climbed 3.29% in the time period analyzed, making it the only rising stock in the smartphones and telcos category.
Compounding on Xiaomi’s relatively good outlook in China, are good results in India. The Beijing-based company remains the top smartphone brand in India, according to research by market intelligence firm Canalys published on Jan. 29.
Supply chain delays
The epidemic also creates challenges and disruptions for supply chains in China, especially after authorities in some big cities announced rules barring companies from resuming operations for a certain period of time following the break.
Companies in Shanghai, for example, are not allowed to re-open offices before Feb. 10, meaning either remote work or a longer holiday. In the meantime, jobs that require the physical presence of employees, like factories, remain closed.
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Car manufacturer Hyundai had to close all its factories in South Korea after it ran out of critical components coming from China. The world’s fifth-largest automaker said it would take three to four weeks to switch to parts made outside China.
“We expect that most consumer electronics manufacturers will resume operations on Feb. 9 or Feb. 10, which means a delay of roughly one week,” said Fang.
“But, given that the first quarter is always a low season for electronics consumption in the year, the impact is limited. We expect that orders affected by the delay will account for less than 2% of smartphone makers’ annual orders.”
CORRECTION: An earlier version of this article erroneously reported Meituan Dianping’s stock price as though it were listed in US dollars. The company’s shares are priced in Hong Kong dollars.