Chinese technology stocks fell for a second session on Monday, putting them on track for their worst two-day decline since July, as investors fretted that Beijing may impose new restrictions on private enterprise.
The country’s banking watchdog issued a warning on Friday against illegal fund-raising schemes involving the concept of the metaverse, and an industry association vowed on Monday to oppose speculative trading in the sector, among other things. Neither of them mentioned any specific companies. Tencent Holdings Ltd., China’s pioneer in the development of the metaverse, saw its stock price drop as much as 6.3 percent. Alibaba Group Holding Ltd. experienced a 4.3 percent drop in share price.
The Hang Seng Technology Index, which tracks the largest Chinese technology companies, was on track to lose more than 6 percent over the course of the two sessions. The stock of delivery giant Meituan fell as much as 18 percent on Friday after Beijing implemented a new policy to limit the service fees charged by the platform, marking the beginning of the decline.
Justin Tang, head of Asian research at United First Partners, stated that there is “concern” about new regulatory reforms taking effect. In the period leading up to Meituan, there was a sense of ‘this is it in terms of reforms.’ As a result, investors are beginning to believe that there may be more to come.”
A warning issued on Friday by the China Banking and Insurance Regulatory Commission cautioned investors against fund-raising and investment products related to the metaverse concept due to the speculative nature of such investments. In a statement released on Monday, the metaverse industry association stated that the sector should be developed to benefit the real economy.
China’s latest crackdown demonstrates that the $1.5 trillion technology war is far from over.
Since reaching a high in January of last year, Tencent shares have lost 40% of their value. The gaming behemoth, as well as competitors such as Alibaba and Meituan, found themselves in the crosshairs of Beijing as the country cracked down on monopolistic behaviour and tightened its grip on user data in recent years. The year-long crackdown has resulted in the loss of more than $1.5 trillion in market value for the nation’s technology industry.
In the words of Castor Pang, head of research at Core Pacific-Yamaichi, “the market is extremely concerned that additional crackdowns will be implemented and that this will leave technology companies with little room to turn around their businesses.” “The metaverse fears demonstrate that the market is concerned that tech firms will not be able to grow a new business as quickly as they have in the past in China. That has a significant negative impact on the already fragile sentiment.”
When some of the world’s largest technology companies report earnings in the coming weeks, investors will be able to see just how damaging China’s continued crackdown has been to their bottom lines and profitability. Alibaba will release its earnings report on Thursday.
This week, as Alibaba reports earnings — in the midst of a trade war, additional Hong Kong restrictions, and increased regulatory oversight — investors’ nerves are on edge, according to Wai Ho Leong, a strategist at Modular Asset Management.