China Tech Stocks Drop on Regulatory Fines, Broad Sector Decline

  • Losses come after slide in Nasdaq Golden Dragon China Index
  • Penalty reminds investors about regulatory risks: Saxo Capital

China’s tech stocks headed for a second day of declines as concerns over further regulatory probes into the country’s internet giants and losses in the broader sector dampened sentiment.

The Hang Seng Tech Index fell as much as 2.8% after tumbling 3.9% on Monday, taking declines from a June peak to 12%. Alibaba Group Holding Ltd. was among the biggest drags on the gauge, down as much as 6.1%. A regional gauge of tech stocks was down as much as 2.3%.

Fines on Alibaba as well as Tencent Holdings Ltd. over the weekend have revived worries that a year-long crackdown on private enterprise may still have legs. A fresh virus outbreak in Shanghai is adding to the pressure as traders brace for new restrictions just weeks after the city exited a lockdown.

While the fines were “negligible,” said Redmond Wong, a strategist at Saxo Capital Markets, “the penalty reminded investors about regulatory risks over Chinese internet companies.”

The Hang Seng Tech Index is on track to enter into a technical correction and test its 100-day moving average. The daily price average had worked as a major resistance for the index since March 2021 when it slipped below that line.

Investors will likely be keeping tabs on the upcoming earnings season to figure out the extent of recent lockdowns on the mainland on the bottom line. Still, this week’s quick pullback – some of which traders attributed to profit taking – shows that investors remain cautious on the sector.

Other China stock gauges were also in the red on Tuesday. The CSI 300 Index was down as much as 1.3% while the Hang Seng Index lost 1.6%.

Author: Ishika Mookerjee, Bloomberg

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