Trump smacks Hong Kong’s new high-flying tech stock index amid heightened fears of cold war with China
- New tech benchmark sees biggest percentage loss since launch as Trump sets off rout
- Global expansion plans of Tencent, Alibaba and NetEase put at risk by Trump’s increasing line of attacks against China
US President Donald Trump’s latest jab at China landed squarely on the chin of Hong Kong’s hot new tech stock index – and the results weren’t pretty.
The president signed an executive order banning Tencent’s WeChat from use in the US beginning in 45 days due to security concerns. That triggered a tech rout, on fears the US and China are entering a cold war that comes as China is growing its international tech prowess in 5G, smartphones, fintech and social media.
The index of the city’s largest 30 tech stocks fell 2.5 per cent, narrowing an early loss of nearly 6 per cent, and only its second loss in the two weeks since its launch.
Tencent eased 5 per cent, wiping out about US$35 billion in market cap, nearly equal to the value of the London Stock Exchange Group, the operator of the London bourse. At one point, it plunged 10 per cent. That was a reassuring sign that investors thought the sell-off was too much and provided an opportunity to pick up battered shares.
The tech board had been sizzling, climbing more than 10 per cent by its Thursday close, with food-delivery giant Meituan Dianping the hottest stock among the board’s five heavyweights, with a 16 per cent gain at that point.
But stocks that had been benefiting from “fear of missing out” suddenly could not be dumped fast enough, as investors scrambled to salvage profits from recent run-ups.
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“It highlights the challenges Chinese companies will have, emerging internationally from behind the Great Firewall of China’s protective cocoon,” said Jeffrey Halley, senior Asia-Pacific market analyst at OANDA. “At the heart of the matter are concerns about Chinese companies’ security law obligations to the government on the mainland.”
By market cap, Tencent and Meituan Dianping are two of the index’s five largest stocks, which each account for at least 8 per cent of the weighting. The others are Alibaba, the e-commerce giant and owner of the South China Morning Post, smartphone maker Xiaomi, and lens maker Sunny Optical.
All but Meituan Dianping of the five closed down, though narrowing their earlier big losses by the close. Meituan Dianping, with little exposure outside China, had been down 6 per cent but closed ahead 0.5 per cent.
Alibaba closed down 3 per cent, after falling 6.4 per cent. Xiaomi closed down 3 per cent, while Sunny Optical shed nearly 2 per cent.
The demand for greater auditing transparency could speed up their return to Hong Kong, said Alan Li, portfolio manager at Atta Capital. Already, Alibaba, NetEase and JD.com have launched secondary listings in the city.
“In a long run, it will benefit HKEX [the Hong Kong stock operator] and the tech board in Hong Kong,” Li said. “However, banning WeChat gave a very dangerous signal to the market. And people are worried about tension between the US and China further escalating.”
He added that given the political risk Tencent is not attractive above HK$500. It closed at HK$527.50 on Friday.
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Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong, said that if tensions boil over, Tencent’s games potentially could draw Trump’s ire and potentially be more damaging to the company.
“WeChat itself is not a notable revenue, user contributor to Tencent. But if things further escalate, the possibility of Tencent’s games also being targeted as some sort of ‘surveillance enabler’ cannot be ruled out,” Pang said.
The heady launch of the tech board has been credited with goosing global interest in Hong Kong stocks and is expected to lead to the creation of ETFs (exchange traded funds) to track it, bringing in more money to the city’s market.
Tencent, Alibaba and NetEase – an online game developer and operator that is also on the new tech board – are most vulnerable to the latest threats against Chinese apps, according to analysis by Bloomberg Intelligence. Downloads outside China account for at least 14 per cent of each of their totals, according to its data. Meituan Dianping and JD.com, which is also on the new tech list, have no more than 2 per cent of their app downloads outside China.
“Rising global threats to ban Chinese mobile apps, led by the US, on security concerns and geopolitical tensions, may severely hinder China internet firms’ overseas growth,” Bloomberg Intelligence analysts Vey-Sem Ling and Tiffany Tam wrote in a note on Monday.
“Joyy, Trip.com, Tencent, Alibaba and NetEase face the biggest risks given their global ambitions and relatively high use of their services outside China,” they added. Joyy and Trip.com trade in the US.
