Chinese tech stock sell-off reaches US$527 billion as Alibaba slips, market rebound bypasses troubled sector

Alibaba slipped after first quarterly loss since 2012 as tech stocks lost US$527 billion from February 17 high
Hang Seng Index pared a third weekly loss as US jobless claims report tempered concerns about inflation outlook

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:49am, 14 May 2021

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Alibaba Group Holding fell, deepening a rout on Chinese technology stocks, on concerns about its hefty investment plan as some analysts lowered price targets. The slide eclipsed a slight rebound in the broader Hong Kong market after a resilient US labour market report.

The e-commerce group and owner of this newspaper sank 4 per cent to the lowest in almost a year. Citigroup and China International Capital Corp cut their price targets by at least 9 per cent, saying its plan to reinvest profits to fend off competitions will cast uncertainty over margins. Citic Securities estimates net income to drop 2 per cent in 2022.

The Hang Seng Tech Index slipped 0.5 per cent, taking the gauge of China’s biggest technology stocks to the lowest level since mid-November, lopping US$527 billion of market value off its members from the peak on February 17.

Higher commodity prices, faster US inflation and tightening regulations and liquidity in China have combined to undermine confidence among investors this week. The MSCI Asia Pacific Index, the broadest gauge of regional equities, surrendered this year’s gain on Thursday. Some US$2.55 trillion in value was erased since the index peaked in mid-February.

In Friday’s trading, the Hang Seng Index rose alongside with other major markets in the Asia-Pacific region, rising 1.1 per cent to 28,027.57 from a four-month low. The rebound narrowed the losses this week to 2 per cent and marked a third straight weekly decline. In mainland China, the Shanghai Composite Index rose 1.8 per cent on Friday, adding to a 2.1 per cent advance for the five-day period.

Traders were given a respite from smaller jobless claims in the US, as a sustained recovery in the labour market allayed concerns over inflation and rising bond yields.

Among the best performers, AIA Group rallied by 6.3 per cent after the insurer posted a stronger-than- expected 25 per cent jump in new business values last quarter, a gauge of future profitability.

Alibaba tumbled 4 per cent to HK$204.60 in Hong Kong for its lowest close since June 2 last year. The company will invest all of its incremental profits in areas such as technology innovation and support for small online shops over coming years, chairman and chief executive Daniel Zhang Yong said on an earnings call late Thursday.

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The group lost 7.65 billion yuan (US$1.2 billion) in the fourth quarter, its first since 2012, which took into account a US$2.8 billion fine by China’s antitrust regulator.

“On the investment side, we consider market factors in the fiscal year of 2022 as an investment year for Alibaba,” said Thomas Chong, an analyst at Jefferies in Hong Kong. “In the fiscal year of 2022, we expect adjusted Ebita to remain flattish year-on-year as Alibaba will invest incremental profit for future growth.”

The record fine on Alibaba has caused an overhang on Chinese technology stocks trading in the city as China tightened its grip on the sector by initiating probes on an array of market misconducts.

Meituan, which is facing an antitrust probe, shed 3 per cent to HK$244, the lowest close since September. Alibaba Health Information Technology lost 1.8 per cent to HK$21.30.

CCID Consulting, which provides digital consulting services, dropped 1.8 per cent from its offer price at HK$0.55 on its trading debut.