No Signs of Spring for China Tech Stocks in May

Chinese internet stocks sank by more than 3% in Hong Kong on Tuesday, pushing losses for the group past 10% over the last two weeks as part of a global high-tech sell-off combined with concerns about growing regulation of the sector in China.

The Hang Seng TECH Index ended down 3.3% for the day at HK$7.57, bringing its losses since April 29 to just over 10%. The index was launched last August, in a nod to a growing tide of companies like Alibaba, JD.com and NetEase which were making secondary listings on the bourse to complement their older New York listings.

Most of those companies are also components of the index, and have seen similar declines over the last two weeks. Shares of Alibaba are representative of the group, down 3.5% on Tuesday and down about 10% since April 29. The exchange’s other China internet giant Tencent, which is only listed in Hong Kong, was down by a milder 1.8% on the day and 7% over the last two weeks.

By comparison, the Hang Seng Index, considered the broadest barometer of the Hong Kong stock market, is down about 4.2% over the last two weeks.

Analysts and market observers said a number of factors were at play, including global trends that have also hit major global tech companies. Among those, Amazon and Facebook are both down by about 8% and 7%, respectively, over the same two-week period.

“This seems to be somewhat in line with what has been happening on Nasdaq: concerns about inflation and overvaluation. It’s likely also to be impacted by forward expectations as people, at least in the West, are either returning or close to return to normal life and this is helping traditional sectors to rebound,” said Rene Vanguestaine, head of Christensen Investor Relations, an investor relations consultant that works closely with many U.S.-listed Chinese companies.

He added the Chinese companies may be taking a bigger hit than their global peers due to country-specific factors — most notably a recent crackdown on monopolistic practices by some of the largest players. That campaign saw China’s market regulator fine Alibaba a record 18.2 billion yuan ($2.8 billion) last month for anti-competitive practices. Later in the month, online-to-offline services giant Meituan also disclosed that it was being investigated for anti-competitive behavior. 

“There appear to be both concerns that regulators in China will tighten their grip on tech companies as well as lofty valuations looking increasingly stretched as interest rates look to be on the rise,” said another analyst at a mid-sized brokerage, speaking on condition of anonymity due to company policy. “The valuation question should resolve itself over time, but it seems like the market is becoming a bit more conservative as headwinds become more obvious,” he added.

Contact reporter Yang Ge (geyang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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