Alibaba’s share price jumped 12% in a single day. Is China tech making a comeback?

• Alibaba's rally reflects improving fundamentals, not just sentiment. Legal overhangs are easing, profitability is improving and AI-powered cloud growth is strengthening according to earning briefing for 1QFY2027.
  
  
• A rotation out of semiconductor stocks has redirected capital into Chinese technology. Profit-taking in AI hardware names has highlighted the relative value of Hong Kong-listed internet companies.
  
  
• Chinese technology remains structurally different from North Asian markets. Unlike Japan, South Korea and Taiwan, whose indices are dominated by AI hardware, China's major indices are led by internet platforms, providing valuable portfolio diversification.
  
  
• Valuations remain compelling. The Hang Seng TECH Index continues to trade below its historical valuation despite improving earnings prospects, with our estimates implying around 42% upside by FY2028.
  
  
• The next catalyst is earnings season. A sustained re-rating will depend on Alibaba, Tencent and JD.com delivering stronger earnings, accelerating AI-related growth and confirming that fundamentals are catching up with improving sentiment.

For much of 2026, the conversation in Asian equities revolved around one trade: semiconductors. AI-related hardware names in Japan, South Korea and Taiwan dominated performance tables, while Chinese internet stocks faded into the background.

Alibaba looked like a prime example. By 26 June 2026, the stock was trading near its 52-week low of HKD 89.5, almost 50% below its 2025 peak. Investors saw a company facing slowing domestic consumption, intense competition and unresolved US legal issues. It increasingly resembled a “value trap” rather than a “value opportunity”.

Then came 8 July 2026. Alibaba jumped as much as 12.5% in a single session, its strongest one-day gain in 10 months. Tencent and JD.com each rose more than 4%, while the Hang Seng TECH Index gained roughly 5.2% (All returns in SGD).

The key question is not what happened in one day. The more important question is whether this marks the beginning of a broader re-rating for Chinese internet companies.

Alibaba: Legal clouds are clearing and fundamentals are improving

The move on 8 July was the culmination of several developments that had quietly reduced investor concerns.

1.      The US legal overhang became quantifiable. On 1 July, Alibaba and its Ant-affiliated US payments arm agreed to pay a combined USD600 million to resolve a United States Department of Justice investigation related to illegal pharmaceutical sales on Alibaba.com and AliExpress. The underlying allegations were serious, involving roughly 80,000 prohibited transactions between 2016 and 2024. But the market focused on a different point: the case was settled through a non-prosecution agreement. Alibaba avoided a criminal conviction and gained clarity on the financial cost. For investors, a known liability is often easier to value than an open-ended legal risk.

2.      A second legal victory reduced headline risk. On 5 July, a federal judge in California temporarily blocked the Pentagon from enforcing a lobbying restriction linked to Alibaba’s designation on the US “Chinese military company” list. The ruling did not remove Alibaba from the list, and the broader legal challenge remains ongoing. However, it weakened another source of persistent negative headlines and allowed investors to focus more on business fundamentals.

3.      The earnings outlook appears to be improving. Chinese media reports from Alibaba’s pre-earnings briefing for 1QFY2027 pointed to: narrowing losses at Taobao Flash Sales, reduced losses in its international commerce division (AIDC) and accelerating cloud growth driven by AI demand. These developments reinforce two structural trends that have been building through 2026.

Firstly, the delivery price war is easing. Competition among Alibaba, Meituan and JD.com appears to be shifting away from aggressive subsidy-driven growth. The focus is increasingly on higher-ticket, higher-margin transactions, which improves unit economics across the sector — a trend we highlighted in China's delivery price war nears inflection: positioning ahead of the turn.

Secondly, in its 4QFY2026 results, Alibaba disclosed that AI-related products contributed roughly 30% of external cloud revenue, up from a single-digit percentage two years earlier. Cloud intelligence revenue grew 57% year on year in that quarter. Management has signalled a willingness to sacrifice near-term profits to build AI infrastructure across models, chips and cloud services a thesis we discussed in Tencent and Alibaba missed revenue estimates — so why did their shares rally?

4.      Management is buying its own stock. On 7 July, Alibaba repurchased about 4.1 million shares for roughly USD50 million. One day of buybacks is not transformative by itself. But buybacks send an important signal: management believes the stock is undervalued, and the reduced share count magnifies upside if sentiment improves.

The bigger story: A Rotation into overlooked opportunities

Alibaba's rally was significant, but the broader participation across Hong Kong technology stocks is arguably more important. Alongside Alibaba, Tencent, JD.com, Semiconductor Manufacturing International Corporation, Lenovo and Kuaishou all moved higher. This suggests the market is not simply rewarding one company, but reassessing an entire segment that has lagged global markets.

Hong Kong equities endured a difficult first half of 2026, significantly underperforming as Japan, Taiwan and South Korea rallied. The divergence was largely driven by index composition. While those markets are heavily weighted towards AI hardware leaders that benefited from the AI capital expenditure boom, the technology exposure within the MSCI China Index and Hang Seng TECH Index remain dominated by internet platforms, e-commerce and communication services companies that were largely overlooked. Although Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Grace Semiconductor participated in the chip rally, together they accounted for just 13.7% of the Hang Seng TECH Index as of end-May 2026, limiting the index's ability to fully participate in the semiconductor-led surge.

That dynamic appears to be changing. Over the past week, investors have increasingly taken profits in semiconductor stocks following concerns that the industry's massive capacity expansion plans could eventually create oversupply. Reports that Meta is exploring ways to monetise excess AI computing capacity, alongside plans by Samsung Electronics and SK Hynix to collectively invest around KRW800 trillion in future chip manufacturing capacity, have heightened those concerns. By 8 July, the rotation had become pronounced. South Korea's Kospi Index fell 4.8% in SGD terms, marking its second consecutive decline, while Japan's Nikkei also retreated as investors reassessed the risk-reward profile of AI hardware stocks.

As capital flowed out of the year's biggest winners, some of it naturally moved toward areas that had underperformed but still offered attractive growth prospects. Chinese internet companies fit that description.

Chinese equities: diversification benefits at cheap prices

We continue to view Asian semiconductors as one of the region's most compelling long-term investment themes. However, recent market moves reinforce why maintaining exposure to Chinese equities alongside semiconductor holdings can be valuable.

Related article: Asia’s AI trade sell-off: A warning sign or healthy reset?

Markets such as South Korea and Taiwan have become highly concentrated bets on AI hardware demand. Samsung and SK Hynix account for more than 40% of the Kospi's market capitalisation, while Taiwan Semiconductor Manufacturing Company represents more than 40% of the TAIEX Index. As positioning in these markets becomes increasingly crowded, share prices are becoming more sensitive to any perceived imbalance between future supply and demand.

Chinese equities offer a different source of returns. Their largest constituents are internet platforms rather than hardware exporters, meaning they are driven by different earnings drivers and face different risks. This diversification benefit has become increasingly apparent during recent semiconductor-led pullbacks.

To be clear, China's challenges have not disappeared. Consumer spending remains soft, the property sector continues to weigh on confidence, and economic growth remains uneven. Yet much of that pessimism is already reflected in valuations. Moreover, Beijing retains significant room to introduce additional consumption-support measures in the second half of 2026.

Valuation remains one of the strongest arguments for Chinese equities. As of 30 June 2026, the Hang Seng TECH Index traded at approximately 20.4x forward earnings, well below its historical average of 28.7x since its inception in 2020. Similarly, the MSCI China index traded at attractive valuation against both 10-year average and other Asian peers (Figure 1).

Figure 1: Chinese equities remain attractively valued compared with regional peers and their own 10-year average.

For global investors searching for under-owned opportunities, the combination of improving company fundamentals, easing regulatory concerns and relatively inexpensive valuations is increasingly difficult to ignore.

What would make this rally durable?

A short-term capital rotation alone is unlikely to sustain a multi-month rally in Chinese equities. Capital can flow into laggards quickly, but it can also leave just as fast.

The more important test arrives in August when second-quarter earnings season begins. If Alibaba's improving margins and accelerating cloud growth translate into stronger reported results — and if Tencent, JD.com and other internet platforms confirm similar trends — the sector could enter a more durable re-rating phase driven by fundamentals rather than positioning.

For now, however, Alibaba's 12% surge offers a useful reminder. In a market increasingly concerned about overheating in AI hardware, a deeply discounted internet platform with improving fundamentals and diminishing legal risks suddenly became an attractive story in Asia.

Our estimates suggest the Hang Seng TECH Index could reach HKD6,708 by FY2028, representing 41.8% upside from current levels. We estimate the MSCI China Index could rise to HKD89 over the same period, implying 20.8% upside. At current valuations, both the Hang Seng Tech Index and the broader Chinese equity market continue to offer meaningful upside potential for investors willing to tolerate near-term uncertainty in exchange for longer-term growth prospects

Table 1: Recommended Products

Categories	Recommended Products
China Tech	·         iShares Hang Seng Tech ETF (HKEX: 3067) ·         Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST)
Chinese equities	·         Fidelity China Focus A-SGD ·        iShares Core MSCI China ETF (HKEX:2801)

Table 2: Projections for the Hang Seng Tech Index

Hang Seng Tech Index	FY25	FY26E	FY27E	FY28E
PE Ratio (X)	18.8	18.3	17.5	15.9
Earnings Growth (YoY%)	2.8%	2.6%	4.8%	10.2%
Earnings Per Share	251.5	258.1	270.5	298.1
Dividend Yield (%)	2.2%	2.3%	2.4%	2.4%
Target Price (HKD)(Based on 22.5X fair P/E ratio)				6,708
Upside Potential (%)				41.8%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 7 Jul 2026.

Figure 2: Share price vs. EPS chart for Hang Seng Tech Index

Table 3: Projections for the MSCI China Index

MSCI China Index	FY25	FY26E	FY27E	FY28E
PE Ratio (X)	12.0	11.5	10.9	9.9
Earnings Growth (YoY%)	2.8%	4.1%	5.9%	9.4%
Earnings Per Share	6.2	6.4	6.8	7.4
Dividend Yield (%)	2.2%	2.3%	2.4%	2.4%
Target Price (HKD)(Based on 12X fair P/E ratio)				89
Upside Potential (%)				20.8%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 7 Jul 2026.

Figure 3: Share price vs. EPS chart for the MSCI China Index

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.