Chinese technology stocks dropped for a third straight session amid fresh worries over Beijing’s regulatory plans for the sector.
The Hang Seng Tech Index fell 1.9% on Tuesday to the lowest close since its inception in 2020. Alibaba Group Holding Ltd was among the biggest losers following a Bloomberg report that authorities have begun another round of checks on its fintech business arm.
The rout weighed on the broader Hong Kong market, with the Hang Seng Index slipping 2.7%, struggling to shake off the impact of China’s sweeping crackdown on private enterprise. The gauge was also dragged lower as HSBC Holdings Plc reported a charge relating to its Chinese commercial real estate exposure, while global equities face pressure from escalating Ukraine tensions.
President Xi Jinping’s “common prosperity” campaign has put the business models of many tech titans in the firing line. Food delivery giant Meituan declined another 5.1% on Tuesday after Beijing on Friday ordered it to cut fees. Tencent Holdings Ltd erased losses to trade little changed after denying it is facing a new scrutiny of its core businesses.
The Hang Seng Index has more than halved from last year’s February peak with Beijing’s anti-monopoly campaign now into its second year.
The question is “how much large internet companies’ earnings will be impacted in the long term if they are required to take increasing social responsibility,” said Jian Shi Cortesi, a portfolio manager at GAM Investment Management. There are not enough details currently to make a conclusion yet, she added.
The technology sector’s bullish run had lasted for decades before the “common prosperity” push brought it to an abrupt halt. The clampdown that began in late 2020 has hit almost every corner in the industry, from data security, digital business to online games and overseas listings.
Members of the Hang Seng Tech Index have lost a combined US$1.6 trillion since the February peak last year, Bloomberg data show.
The impact on tech earnings will be on show again on Thursday, when Alibaba is due to report an estimated 60% drop in quarterly profit.
Global funds and analysts, including at Goldman Sachs Group Inc and UBS Group AG, had turned more optimistic on the sector in late 2021, citing easing policy concerns and cheap valuations. But stocks have extended losses in 2022 and the slew of new measures recently are making global funds more cautious.
The recent announcements “might make investors a bit more reluctant to invest in Chinese internet names”, said Herald van der Linde, head of Asia Pacific equity strategy at HSBC Holdings Plc, adding that the regulatory measures pose a risk to his overweight position in China.
“We are still cautious on China internet and have been very selective when it comes to picking exposure to this sector,” he said.