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

China technology

Xinmei Shenin Hong KongandMinghe Huin Beijing

Published: 12:00am, 12 May, 2021

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Shares of China’s Big Tech companies continued to slump on Tuesday, ahead of their earnings report for the quarter ended March, as Beijing’s increased antitrust scrutiny added to investor concerns over high valuations and tightening monetary policy in the world’s second-largest economy.

Hong Kong-listed internet giants Meituan, Tencent Holdings and Alibaba Group Holding have taken a beating amid the recent retreat of Chinese hi-tech stocks.

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.

Wang Xing, the co-founder and chief executive of Meituan, recently sparked a social media frenzy and a sell-off of the company’s shares, after posting a millennium-old Chinese poem seen as an unsubtle jab at the Chinese government. The company is already under investigation for possible breaches of China’s antitrust laws.

Internet giant Tencent Holdings moved close to reaching a US$1 trillion market valuation in February this year. Photo: AP

Shares of Tencent, which runs the world’s largest video gaming business by revenue and China’s biggest social media platform WeChat, declined 1.76 per cent on Tuesday to close at HK$584.50. That is far from the HK$775 share price Tencent reached in February, when the firm’s market value was on the cusp of reaching US$1 trillion for the first time.

In March, Tencent confirmed a meeting between its founder Pony Ma Huateng and Beijing’s antitrust authority amid speculation about the company being the next target for an investigation.

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.

The State Administration for Market Regulation slapped an 18.2 billion yuan (US$2.8 billion) fine on the e-commerce giant in April, closing a months-long antitrust investigation that started on Christmas Eve last year.

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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.”

China’s latest inflation data also added to ongoing fears that policymakers will further rein in ultra-loose monetary stimulus amid the ongoing Covid-19 pandemic, which has fuelled prices of stocks, raw materials and properties.

Meituan scraps fixed commission fees amid regulatory heat

It remains unclear how Beijing’s crackdown on the internet industry will pan out.

Shares of Pinduoduo, which surpassed Alibaba in terms of annual active buyers in 2020, have declined more than 11 per cent from a month ago, while smartphone giant Xiaomi Corp and Tesla electric car rival Nio fell by 5 per cent and 7 per cent, respectively, in the same period.

Smaller tech companies, including Tencent-backed Zhihu and Waterdrop, slumped in their US trading debut, showing that international investors see risks in investing in Chinese tech stocks, according to Jerric Wu, senior project manager at Kotler Marketing Group China.

“International investors feel the policy risks in US-China relations and Biden’s China policies,” Wu said.

US to impose law requiring access to Chinese firms’ audit or face delisting

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.

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