Chinese regulator brought down stocks of Asian tech giants
Fears that Beijing could tighten the screws to China's biggest tech companies cut hundreds of billions of dollars in market value in just two days.
Alibaba and JD.com Shares Down More Than 10% in Hong Kong Trading Since Tuesday. That drop blew away HK $ 756 billion ($ 97 billion) in market value for Alibaba, the billionaire-founded e-commerce giant Jack Ma. Main competitor JD.com Lost HK $ 201 Billion ($ 26 Billion).
Meituan Dianping, which offers services similar to Groupon and Yelp, and gaming company Tencent also lost billions of dollars of its capitalization. A total of four issuers have lost more than $ 255 billion in total, based on the value of their Hong Kong stock, according to Refinitiv..
Analysts point to signs of repression by Beijing as the cause of investor concerns. On Tuesday, the State Administration for Market Regulations (SAMR) outlined guidelines that the PRC's chief market regulator says are designed to prevent internet monopolies..
These guidelines are still in draft form. The regulator announced on its website that it is studying public opinion on the project by the end of this month and welcomes proposals for changes.
But appearing so soon draft guidelines and rules after Beijing stalled the largest IPO planned by Ant Group, a subsidiary of Alibaba, provides further evidence of Beijing's intention to impose new restrictive measures on China's largest tech companies, which Chinese officials have long promoted as «national champions».
The regulator said reducing the dominance of e-commerce websites and other applications will protect fair market competition and ensure healthy growth of the internet economy.
«The Chinese government is concerned about actual or possible monopolistic behavior, as well as the sheer size of incumbent operators, which either lead to unfair competition or crowd out new entrants and reduce competition», – said Jeffrey Halley (Jeffrey Halley), Senior Asia Pacific Markets Analyst at Oanda, added that the drafted guidelines signal «much more stringent regulatory environment» for the technology sector.
Halley said he expects tech stocks to remain under pressure until the scope and scope of the new rules will not become clear.
The stock selloff is also fueled by investors shifting from the booming tech sector to other assets that track the business cycle more closely, especially after Pfizer's breakthrough in the Covid-19 vaccine has raised hopes for a return to a more normal life, he added..
Other analysts believe China's tightening of legislation could impact the growth of the internet sector, especially e-commerce sites..
«We believe that strict adherence to the rules could weaken the bargaining power of these major platforms with merchants.», – Nomura analysts said in their research report on Tuesday.
Meanwhile, Citi analysts said Alibaba and Pinduoduo may be more affected than other e-commerce websites, as the two websites rely on personalized and targeted product recommendations, i.e. those functions that may be limited by new rules.
China tech giants lose $280 billion in market value — Here’s what to know
Chinese government has recently stepped up efforts to pressure fast-growing internet companies.
Last week, three government departments – the market regulator, the Internet regulator and State Tax Administration – convened 27 internet platforms including major Alibaba, Bytedance, Tencent, Pinduoduo, Baidu and JD.com, to discuss the regulation of the online economy.
Regulators have warned market participants against monopolistic behavior and said the government will publish more regulations regarding online transactions, streaming and other services. They said that after the shopping season on Singles Day, they will begin reprisals against «illegal cases» and warned companies against overstating sales figures and deceiving customers.
Online shopping success within «Singles Day» this year, it seems, is going on a record again. E-commerce giant Alibaba says early Wednesday morning that the annual big sale so far has already generated 372.3 billion yuan ($ 56.3 billion).
But this event was also accompanied by official criticism. The China Consumers Association, the state-backed national consumer protection group, last week called for «rational consumption», and the state news network CCTV called for «fewer gimmicks» from trading platforms.