Chinese technology stocks fall to new lows in the campaign led by Alibaba

(Bloomberg) — Chinese technology shares fell for a third straight session amid fresh concerns about Beijing’s regulatory plans for the sector.

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The Hang Seng Technology Index fell more than 3% on Tuesday and headed for its lowest closing level since its inception in 2020. Alibaba Group Holdings Ltd. led the declines after a Bloomberg report that authorities began another round of checks on its fintech trading arm.

The defeat affected the broader Hong Kong market, with the Hang Seng Index down 3.5% as it struggles to shake off the impact of a sweeping Chinese crackdown on private companies. The weakness also comes as global stocks face pressure from escalating tensions in Ukraine.

President Xi Jinping’s “shared prosperity” campaign has put business models for many tech giants in the firing line. Food delivery giant Meituan fell another 6% on Tuesday after Beijing on Friday ordered it to cut fees. Tencent Holdings Ltd. declined. by as much as 3%, even after it denied it was facing new scrutiny on its core business.

The Hang Seng Index has more than halved from its February peak last year as Beijing’s antitrust campaign is now entering its second year.

The question is “how much will the long-term profits of large internet companies be affected if they are asked to take on increased social responsibility,” said Jian Shi Curtisi, portfolio manager at GAM Investment Management. She added that there are currently not enough details to reach a conclusion yet.

The tech sector’s upward trend continued for decades before the “shared prosperity” boost brought it to a sudden stop. The campaign that began in late 2020 has hit almost every corner of the industry, from data security and digital business to online gaming and outdoor listings.

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Bloomberg data showed that members of the Hang Seng Tech Index have lost a combined $1.6 trillion since their February peak of last year.

The impact on tech earnings will be seen again Thursday, as Alibaba is set to report an estimated 60% drop in quarterly profit.

Global funds and analysts, including those at Goldman Sachs Group Inc. and UBS Group AG, are more upbeat about the sector in late 2021, citing easing concerns about policy and cheap valuations. But stocks extended their losses in 2022, and a series of new measures recently is making global funds more cautious.

Herald van der Linde, head of Asia Pacific equity strategy at HSBC Holdings Plc, said the recent announcements “may make investors a bit more reluctant to invest in Chinese internet names,” adding that regulatory actions pose a risk to his overweight position. In China.

“We remain cautious on the Internet in China, and we have been very selective when it comes to choosing exposure to this sector,” he said.

(Details updates and pricing throughout.)

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