China’s Technology Stocks Plummet
Xi for third turn elected
It’s been a tough few weeks for Chinese tech stocks. Since Chinese President Xi Jinping was re-elected to a second five-year term on October 24, the MSCI China Information Technology Index has tumbled 6.6%. Investors are worried that Xi’s consolidation of power will lead to stricter regulation of the tech sector, which could hurt the industry’s growth prospects.
Monday, China´s Tech Stocks Fell The Most
On Monday, China’s tech stockAlphabet: Quarterly Earnings Disappoints fell the most in a single day as investors fled the world’s second-largest economy following Xi Jinping’s approval for an unprecedented third term as president.
General Secretary Xi, who emerged from the Communist Party congress last week with a firmer grip on power and a Politburo Standing Committee stacked with loyalists, is expected to broaden his government’s crackdown on big tech companies and their billionaire owners as he tightens his grip on the broader Chinese economy.
China now has a more concerted senior government official team than ever before. This means that President Xi will have an even greater say in policy direction,” said Iris Pang, chief China economist at ING. “We do not expect major policy changes because most, if not all, existing policy decisions have been agreed upon with Xi.” This includes possible changes to the central bank governor, banking regulator, and economic adviser.”
The benchmark CSI 300 in China fell 2.9% during the day, while the tech-heavy Shenzen index fell 2.06%. The Hong Kong-based Hang Seng index, which trades more freely and without short-selling restrictions, plummeted 6.36%, while the Hang Seng China Enterprises Index, which monitors Chinese-based stocks, fell 7.3%.
Pre-market trading for China-based companies in the United States was also considerably lower Monday, with Alibaba Group Holding (BABAF) falling 16.72% to a year-to-date low of $60.12 per share. In comparison, JD.com (JD) plunged 18.5% to $34.34 per share. Baidu (BIDU) shares fell 17.65% to $75.13 per share.
U.S. tech stocks were also down, particularly those that rely heavily on China for sales, such as Apple (AAPL), which traded 0.6% lower at $146.41, Advanced Micro Devices (AMD), and Nivida (NVDA), which fell 3.4% and 3%, respectively.
“Many of the large US corporations have significant revenue exposure to China,” Saxo Bank strategists wrote in their daily market report.
Big Tech investors are concerned about Xi’s reign:
President Xi Jinping successfully secured ultimate control for life and surrounded himself with allies in the country’s highest decision-making body. Fears of increased government control over corporations have caused several stock market disasters.
According to Asia Markets, the Hang Seng Chinese Enterprise Index was down 6.7% from Friday’s closing, with trade yesterday reaching the lowest level since the index’s inception in 2005.
- The Hang Seng Index plummeted 6% to levels last seen during the global financial crisis of 2008-2009.
- Chinese technology companies bore the brunt of the sell-off, with Alibaba, Pinduoduo, Tencent, Baidu, Meituan, and JD.com all falling more than 10%.
- In early trading, Monday, the Nasdaq’s Golden Dragon China Index, which tracks the performance of large Chinese companies traded on US exchanges, fell as much as 20%.
“Some investors may be concerned about the lack of checks and balances, as well as the likelihood that prospective policy missteps would lead to severe economic shocks,” Bank of America told Nikkei Asia.
The yuan fell to a 14-year low of 7.3 per US dollar on Monday.
China’s heavy-handed supervision over Big Tech: Several Chinese Big Tech businesses have been subjected to strict regulation, which has scared away investors, discouraged listing in foreign markets, and exacerbated economic uncertainty caused by months-long COVID-related closures.
Didi’s shares lost more than 60% of their value early this year after regulators asked it to delist from the NYSE.
According to Yahoo, $623 billion of Tencent’s market value has evaporated due to delaying government approval of new games and a decline in advertising revenue, which has slowed earnings.
- Due to tightening rules and a sluggish economy, JD.com, Alibaba, and Tencent laid off thousands in April.
- Before Xi’s third term and the cabinet move, some investors were already declaring portions of China uninvestable.
- What comes next? Expect the Chinese government to rapidly regain control of the economy, which is expanding at its slowest rate in three decades, owing primarily to pandemic-related closures and the government’s zero-tolerance policy lockdowns.
Investors have been dumping Chinese tech stocks since President Xi Jinping was re-elected to a second five-year term on October 24. The sell-off has been driven by concerns that Xi’s consolidation of power will lead to stricter regulation of the tech sector, which could hurt the industry’s growth prospects. Additionally, many Chinese tech stocks are overvalued relative to the rest of the market.