The rebound by Chinese tech looks like a head fake.
After beginning Thursday in rally mode, the BATs stocks – Baidu, Alibaba and Tencent – gave up the gains to sink into the red. The group had looked to be making up some ground earlier in the week after a tough summer.
Mark Tepper, president of Strategic Wealth Partners, sees the chances of another rebound as slim.
“Chinese stocks, in general, they’re having a rough time because the investment climate in China just isn’t favorable,” Tepper told CNBC’s “Trading Nation” on Thursday. “Overall weakness in the Chinese economy, slowing retail sales and a weak currency is going to push all of these stocks even lower so we would not be buyers right now.”
Chinese stocks have been hit hard over the past six months by escalating trade disputes between China and the U.S. The White House imposed the latest round of tariffs on $16 billion worth of Chinese imports early Thursday. China’s government retaliated with its own tariffs on a similar amount of U.S. goods.
Over the past six months, Baidu has slumped 12 percent, Alibaba is down 11 percent and Tencent has dropped 19 percent.
Tepper does favor one of the Chinese web stocks as having potential over the long term: Alibaba.
“They’re growing faster than Amazon and they’re priced at one-third the multiple so that to me signals this is a good long-term buy,” said Tepper. “They just posted an awesome quarter beating on both the top and bottom lines, the stock is still down though. They showed that they’re not affected by the trade war and they’re still down.”
Alibaba drove first-quarter sales 61 percent higher with the best growth seen in cloud computing. Cloud and web services is a highly competitive market in which Amazon is also expanding its footprint. Amazon reported 40 percent revenue growth in its recent quarter. Alibaba trades at 26 times forward earnings, a fraction of Amazon’s 85 times multiple.
Mark Newton, technical analyst at Newton Advisors, said recent sell-offs have taken Alibaba and its peers down to what looks like a bottom.
“Near term I still see the chance for weakness, and particularly in the next three to five weeks, but many of these are down to pretty decent levels,” Newton said on “Trading Nation” on Thursday. “I don’t think necessarily the worst is over but I do think there’s a bottoming process now at hand.”
Newton identifies the $175 level on Alibaba as an entry point, Baidu at $200 and Tencent at $40.
“A lot of these names do deserve consideration for an intermediate-term trade on the long side but you have to be patient,” Newton said.
Baidu is down 6 percent since the beginning of the year, and Tencent has dropped 13 percent, while Alibaba is flat.