Chinese technology has accumulated a $700 billion recovery rally stage.

Chinese tech stocks staged a $700 billion rally as the country reopened and regulatory controls on the sector eased, attracting the attention of global asset managers who have fled the market in recent years.

Hong Kong’s Hang Seng Tech Index is up 60 percent from last October’s low, with heavyweights like Tencent and Alibaba gaining $350 billion in market value, according to a Financial Times calculation based on Bloomberg data.

The gains at the end of last year, as Beijing began to lift its Covid-19 restrictions, sharply contrasted with the painful situation for Chinese tech stocks. Many big-name groups in the sector were rated low by punitive central government measures from 2021. During the attack, many foreign fund managers argued how “uninvestable” Chinese stocks are.

While foreign investors remain skeptical, strategists and traders say domestic investors and hedge funds have been shorting China’s tech stocks since the rally began, while most major global investors have yet to fall.

“Is a fund manager sitting in Boston with a global technology mandate necessarily running this Chinese technology rally? No, said Andy Maynard, a trader at Hong Kong-based China Renaissance Bank. “Now he or she is sitting there[ . . .]feeling fomo [fear of missing out]? Almost certainly.”

Global investors and analysts have once been big bulls for tech stocks like Alibaba, Tencent and NetEase, which have turbocharged China’s growth for years and are reshaping its economy with innovations like online payment platforms and super apps. But in the year In the second half of 2021, sentiment turned sour as President Xi Jinping’s administration began a sweeping crackdown on the sector’s most powerful corporate groups.

Now, strategists say, the game has changed again, with Beijing abandoning the country’s long-standing and economically damaging zero-covid policy and using all means at its disposal to bolster growth. Recent share price gains have been bolstered by earlier positive calls by analysts to advise investors to jump back into the lagging sector.

Si Fu, China equity strategist at Goldman Sachs, said easing regulatory pressure, improving earnings in China’s internet stocks and easing the risk of delisting of tech groups listed in New York contributed to the rebound. It can also boost consumer confidence and help traffic and volume in e-commerce companies.

Analysts at Morgan Stanley have added more upside to tech amid a broader “reopening rally” for Chinese stocks, recently recommending “large-cap, highly liquid Chinese Internet companies, an option for Alibaba.”

Some of the strongest signs to buy this year have come directly from Beijing: Authorities have begun buying up “golden shares” — small equity stakes with special rights over certain business decisions — in parts of Alibaba and Tencent, normalizing the state’s role in tech groups and a sign of broader crackdowns.

Officials continue to approve new video games for sale, important to both Tencent and NetEase, while Ride-hailing group DD has been given permission to sign up new customers after an investigation into the company forced it to pull out of Chinese app stores two years ago.

According to Zikai Chen, head of Asia equity at BNP Paribas Asset Management, these measures are more significant than the previous ones, especially symbolic, such as when Vice Premier Liu He tried to convince foreign investors that the worst of the technology boom was already over. First in March last year and then in May.

“Now they’re really taking some. [positive] Actions, and actions speak louder than words,” Chen said. But he added: “After the shock of the last three years, global funds are probably still underweight Chinese technology.”[. . .]And the question on people’s minds is whether the earnings can come back in the coming quarters.

That caution from global investors was reflected in a review of fund flows and stock data by analysts at the CICC, which said the recent rally for Hong Kong stocks was driven mainly by hedge funds and short-covering, while traders who bet on the stock price should buy stocks to close their waterfall positions.

“The trading of such funds is unlikely to be driven by fundamentals, and this explains the speed of the recent market correction,” said Kevin Liu, an equity strategist at CICC.

Si, who trades all Chinese stocks in the US, Hong Kong and mainland China at Goldman, said: “Since the end of October, the position of hedge funds has increased significantly. We have seen some long-only fund positions take off, although not as quickly.

At China Renaissance, Maynard said the rally “still has room to run.” If you’re a long-only fund manager with a global technology mandate, how can you not see that 60 percent rally in the Hang Seng Tech Index?” he said.

But he added that estimates for the sector’s larger stocks are unlikely to recapture the highs touched before the sector boom.

“We’re not going back to the first half of 2021, the game has changed for good,” he said. Now the dynamics are very different – the market, regulatory environment, macro, micro, everything has changed.