China Big Tech shares take a beating ahead of latest quarterly earnings reports
- Facing regulatory and economic uncertainties, China’s Big Tech firms’ shares continue to tumble as pandemic enthusiasm wears off
- The upcoming quarterly earnings reporting season is expected to show China’s internet giants are coping with increased regulatory scrutiny
Meituan, operator of China’s largest on-demand food delivery service, led the decline on Tuesday by tumbling for a 10th consecutive day to close at HK$249, down from its record high of HK$460 two months ago.
Shares of Alibaba, the parent company of the South China Morning Post, were down 2.57 per cent on Tuesday to close at HK$219.53, down from October’s all-time high of HK$309.
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The upcoming earnings reports for the March quarter are expected to reveal how Big Tech has been coping with Beijing’s regulatory pressure.
The sharp drop for Chinese tech shares has taken some investors by surprise, given the sector‘s relative strength through the pandemic, according to Hao Hong, head of research at Bocom International.
“A main problem is that their valuations are too high,” Hong said. “Negative catalysts, such as the antitrust investigations, also restricted these stocks’ performance.”
It remains unclear how Beijing’s crackdown on the internet industry will pan out.
The threat of Chinese stocks being kicked off US exchanges is also gaining traction, with the Securities and Exchange Commission starting to implement a law – the Holding Foreign Companies Accountable Act – passed at the end of the Trump administration.
The law lets US regulators review the audits of overseas companies and kick out those who do not comply with the directives of US exchanges.
“[China tech stocks] are already not cheap after last year’s strong performance, and these uncertainties will further prevent their valuations from going up in the short term,” said Bruce Pang, head of macro and strategic research at China Renaissance Securities.
Macro uncertainties, including a rise of Treasury bond yields and inflation, have also burdened Chinese tech stocks, Pang said.