China’s tech crackdown reaches US$616 billion in damage or larger than Thailand’s stock market as money managers wrong-footed
- Tech stocks sank 3.7 per cent in Hong Kong, extending the slump from February 17 peak to 33 per cent or at least US$616 billion in damage
- Fund managers from JPMorgan to BlackRock have differed on the extent of current regulatory crackdown since late last year
The Hang Seng Tech Index slumped for a seventh day in Hong Kong, sinking 3.7 per cent to a nine-month low. The broader market tumbled for an eighth day, losing 2.9 per cent to reach the lowest level this year.
The 30-member gauge tracking industry leaders like Alibaba Group Holding and Tencent Holdings has now lost 33 per cent from the peak on February 17, wiping out at least US$616 billion of capitalisation. That exceeds Thailand’s US$549 billion equity market, the biggest in Southeast Asia.
“The market needs to re-evaluate the sector on the backdrop of all these new regulations,” said Luo Di, a Shanghai-based portfolio manager at UBS Asset Management. “The valuation will definitely be revised downward on the back of the tightening rules.”
This week’s episode evoked fears among seasoned traders and money managers, who may have misread the policy signals from Beijing since the antitrust clampdown on fintech companies. Some funds have differed on the extent of China’s regulatory offensive since November.
The Hang Seng Tech Index is now valued at 43 times estimated forward earnings, compared with a peak of 49 times in February, according to Bloomberg data. Global tech peers traded at about 32 times on Nasdaq.
The current earnings multiple may not be appealing enough for investors like UBS Asset Management. Luo said the Didi Chuxing case, in which China invoked national security in the clampdown, has no precedent and is challenging the valuation methodology.
The ongoing curbs could heighten the risk of industry decoupling, with Chinese companies attempting to catch up with their US rivals against the backdrop of the technology war.
“There’s a big risk of the technology decoupling in China and the US,” said Liu Ligang, chief China economist at Citigroup in Hong Kong. “China still needs to count on these domestic companies with global influence to close the gap in the tech area.”