Battered Chinese tech stocks creep up as funds insist sell-off unjustified as regulatory danger has passed

On Feb 23, 2022 30

Alibaba shares took a drubbing on Tuesday. Photo: Bloomberg

Chinese tech stocks clawed back some ground on Wednesday morning after suffering a tumble that wiped out over US$100 billion of market value the previous day
‘The peak of the regulatory intensity is probably behind us in this cycle,’ said Jessica Tea of BNP Paribas Asset Management

Chinese technology stocks clawed back some ground on Wednesday morning after suffering a tumble that wiped out over US$100 billion of market value the previous day amid fears of renewed oversight of the sector.

Analysts maintained that the worst of the regulatory intensity has passed.

The Hang Seng Tech Index rebounded 0.2 per cent as trading got under way on Wednesday.

It slumped 1.9 per cent on Tuesday, closing at its lowest level since its launch in July 2020. Its three-day losing streak of almost 8 per cent was the steepest loss since July. The losses were led by Alibaba Group Holding, which sank 3.1 per cent after authorities are said to have launched checks into its fintech unit, Ant Group.

That fanned worries that the tech sector could be facing another wave of regulations. But “the peak of the regulatory intensity is probably behind us in this cycle, as we move from policy normalisation to growth normalisation,” said Jessica Tea, Greater China investment specialist at BNP Paribas Asset Management.

“The recent correction in share prices reflects the weak sentiment of the Chinese internet sector rather than a large economic impact on the operations,” said Tea.

Meituan was first among its peers to take a hit. On Friday, China’s state planner, the National Development and Reform Commission (NDRC), told online food-delivery platform operators to slash fees to help reduce costs for catering businesses. The move was intended to foster a recovery in the services sector as it struggles through the Covid-19 pandemic.

Tencent Holdings was hit by online speculation that it was about to face a major regulatory crackdown, rumours the social media and gaming giant denied. The WeChat operator sank 0.1 per cent on Tuesday, while online food delivery firm Meituan lost 5.1 per cent.

The 30-member Hang Seng Tech Index has lost US$110 billion of market value since Friday.

“None of the news in the past few days has been incrementally negative from a fundamental perspective,” said Vey-Sern Ling, senior equity advisor for Asia technology at UBP.

“The guidance for food delivery fee cuts is part of a broader document to support the service industry. The rumours on new gaming restrictions have been denied, and the scrutiny on Ant Group is no different from last year,” said Ling.

Tech stocks like Meituan have launched a number of measures to support smaller businesses, including lower fees and advertisement subsidies during the coronavirus pandemic, said Tea. Meituan’s revenue growth has not slowed down, she said.

Even so, “the golden period of the Chinese internet is probably already behind us in its current form”, said Tea, preferring to remain cautiously selective in the online space.

Investor sentiment will remain weak as tech companies adapt to new regulations, said Ling.

“A tighter regulatory environment should be the norm going forward,” said Ling. “The market needs to come to terms with the new regulatory environment as well as potentially weaker near-term macroeconomic conditions before these stocks can outperform again.”

Author: Cheryl Heng, SCMP