(Bloomberg) — China’s technology stocks are riding a wave of optimism that a regulatory crackdown on the sector may ease, and technical indicators suggest the gains could hold.
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The Hang Seng Tech Index rallied to a two-month high on Monday after the Wall Street Journal reported that Chinese regulators were close to wrapping up their probe of Didi Global Inc. Technical signs indicate that the gains may be longer-lasting than in previous episodes.
The turnaround mirrors a broader shift in sentiment toward Chinese stocks amid hopes that an easing of virus curbs in major cities may revive spending and investment. The CSI 300 Index edged higher, and more gains may be in the offing after upbeat forecasts from strategists at JPMorgan Chase & Co. and Morgan Stanley.
The Hang Seng Tech Index fluctuated on Tuesday as traders weighed the government’s regulatory stance.
Here are three charts to illustrate the improving sentiment in Chinese tech stocks.
The Hang Seng Tech Index has climbed above its 50-day moving average and managed to hold above that level for a week. This is in contrast to previous breakouts over the past year, when it tended to post brief rallies once topping that mark. The gauge is now testing its 100-day moving average, a level it hasn’t effectively broken since the crackdown on the sector began.
The Hang Seng Tech Index’s moving average convergence divergence, or MACD, indicator suggests that the index may have switched to a rising trend. The daily MACD line crossed above zero for the first time since November, and is above the red signal line, which signals a growing bullishness.
Valuations for the technology sector remain far below the longer-term average, which may indicate there’s room for more gains. The Hang Seng Tech Index is trading at about 25 times its forward 12-month earnings, which is 25% below its historical average, according to data compiled by Bloomberg.
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