There is a huge paralysis in the world of Chinese technology: the government is unleashing high voltage searchlights on the operations of the companies. Just last month alone, the assaults wiped more than $1 trillion on the market caps of these companies: “Alibaba shares hit a record low on Thursday in Hong Kong, as the Chinese tech industry grapples with another wave of regulation in an increasingly broad crackdown from the government. This time, the drop came after the government said it was looking at expanding rights for drivers for online giants and increasing oversight of live streaming. The impact of the crackdowns wiped $1 trillion off the Chinese tech industry last month.”
The selloff has prompted some global fund managers including Cathie Wood to dump their holdings in Chinese stocks over the past few months. In fact, some investors are questioning allocations toward Chinese assets altogether.
The new moves are incremental but investors are not at a point where they “will cease to price in any more additional policies,” said Shine Gao, fund manager at Taicheng Capital Management Co. “Even if the worst is over for big tech firms in terms of new regulations, we should expect that their growth won’t be what it was.”
The Hang Seng Index fell as much as 2.3% Thursday while the Hang Seng Tech Index, which counts many Chinese tech giants as its members, dropped to the lowest since its July 2020 inception.
Tencent reversed earlier gains of as much as 3.4% to trade down nearly 3% in Hong Kong as its warnings for more regulatory curbs on the industry overshadowed second quarter earnings that beat estimates.
Among other tech names, food-delivery giant Meituan tanked as much as 7.2%, following a similar drop in ride-hailing company DiDi Global Inc. in the U.S. Video streaming giant Kuaishou Technology slid as much as 4.7%.
People, everything China does is big either on growing or destroying.
But note one thing: these paralyses would not be the end. Yes, these companies would work hard to find ways to grow so that they can keep trading in foreign stock markets where they currently trade. Alibaba has been wounded in China due to the clampdown, and the US investors are certainly not happy. So Alibaba needs to find ways to mitigate this domino. Simply, I expect it to look for more markets and territories to enter.
Africa seems to be a good destination. Do not be surprised if Alibaba decides to acquire Jumia in the next coming months to pacify investors in the US that it is looking beyond China for its future. I also see opportunities for leading promising startups in the continent. Chinese firms will need to pick many pieces from many countries, and then combine them for a continental impact.
Yet, personally, the long-term view for me is that China wants its companies to focus on the hard technology nexus to position the nation to compete for the opportunities of the future. Apps, games, ecommerce, etc are ephemeral, the government will make life hard for both entrepreneurs and investors in these domains. If the nation succeeds, everyone will go into making chips, quantum computing and those hard and boring things. That is one way to compete against Russia and the United States.
This clampdown is just beginning!
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