China tech stocks face more regulatory pain
China’s anti-trust crackdown has exacerbated a global tech stocks selloff
After a historic antitrust crackdown on China’s biggest tech companies last week, investors are betting there is more pain ahead.
GAM Investments, BNP Paribas Asset Management and JP Morgan Asset Management see more regulatory tightening in China’s clampdown on monopolistic practices, putting pressure on the country’s leading internet stocks over the next few months.
The Hang Seng Tech Index, where many Chinese tech giants are listed, has already lost about a quarter of its value from a rout that began mid-February.
“Regulations for China internet companies, especially the big ones, will continue to tighten in 2021,” said Marcella Chow, global market strategist at JP Morgan Asset. “This uncertainty may act as a cap for some companies temporarily.”
China slapped a record $2.8 billion fine on Alibaba Group Holding after a four-month investigation into its market practices, then ordered an overhaul of Ant Group. Over the past week, more than 30 tech giants issued pledges to obey anti-trust laws.
What happens next
Alibaba shares have slumped 23 per cent in Hong Kong from a peak in October. Food delivery platform Meituan and tech giant Tencent Holdings, which have been on analyst radars for regulatory probes, are down 36 per cent and 18 per cent, respectively,
from their peaks earlier this year. By contrast, the Nasdaq 100 index is up more than 8 per cent this year despite entering a technical correction in March.
Looking ahead, China’s tech companies are likely to move far more cautiously on acquisitions, over-compensate on getting signoffs from Beijing, and levy lower fees on the domestic internet traffic they dominate.
Beijing regulators torpedoed Ant’s IPO the month after Ma’s infamous speech, published new rules shortly after intended to curb monopolistic practices across its internet landscape, then launched its probe into Alibaba on Christmas Eve.
“Clarity reduces uncertainty, so this is a positive,” said Joshua Crabb, a portfolio manager at Robeco in Hong Kong.