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Chinese Tech Stocks Suffer Biggest 2-Day Rout Since July Amid Fears Beijing Will Unleash More Crackdowns

Courtesy of ZeroHedge View original post here.

While not directly impacted by the sharp crisis escalation in Ukraine or fears of multiple rate hikes by the Fed, Chinese tech shares suffered their worst two-day drop since July following renewed fears Beijing may roll out more restrictions for private enterprise.

Shares of China's tech giant, Tencent, sank 5.2% on Monday, hammered by speculation about an unspecified, impending crackdown on China’s largest social media and gaming firm that company spokesman Zhang Jun later denied. Traders pointed to everything from warnings from regulators over the weekend about scams in the metaverse to talk about yet more curbs on the gaming industry. Zhang said the online rumors were unfounded, without elaborating.

Amid the rout, Tencent’s head of public relations Zhang Jun denied online speculation that it’s facing a major regulatory crackdown, issuing an unusually aggressive public response after fears of more tech-sector restrictions tanked markets on Monday. He disputed the widely circulated post that suggested the company would weather another heavy blow from regulators in the near future. The account carrying the rumor has since been suspended, Zhang said on his semi-public WeChat feed.

“Ask me next time, at least that’s more legit. And I’m not afraid of going on record,” Zhang said, poking fun at the post citing an anonymous Tencent employee. Before its removal, the post was widely shared on Chinese social media and stock-trading forums. It hinted at another big step in China’s internet crackdown, without providing specifics.

Tencent shares have plunged 40% since a peak in January last year. The gaming giant, along with peers such as Alibaba and Meituan, were caught in Beijing’s crosshairs as China cracked down on monopolistic behaviors and tightened its grip on user data. The yearlong clampdown has wiped out more than $1.5 trillion in market value from the nation’s tech sector.

Meanwhile, as noted earlier, Chinese authorities told the nation’s biggest state-owned firms and banks to start a fresh round of checks on their financial exposure and other links to Jack Ma’s Ant Group Bloomberg reported after markets closed. Alibaba Group, which owns a third of Ant, fell 3.9% prior to the report.

As a result, Hong Kong’s Hang Seng Tech Index lost 5.9% over two sessions, the biggest 2-day drop since July. The decline started Friday when Meituan plunged as much as 18% after Beijing rolled out a new policy to curb the delivery giant’s service fees.  

“There is concern about new regulatory reforms,” said Justin Tang, head of Asian research at United First Partners. “Prior to Meituan, there was a sense of ‘this is it in relation to reforms.’ Investors are now thinking that there could be more to come.”

As Bloomberg notes, on Friday the China Banking and Insurance Regulatory Commission warned against fund-raising and investment products related to the metaverse concept, citing their speculative nature. A metaverse industry body vowed on Monday that the sector should be developed to serve the real economy.

“The market is very fearful that more crackdown will come and that could leave technology companies very little room to turn around their businesses,” said Castor Pang, head of research at Core Pacific-Yamaichi. “The metaverse fears shows that the market is worried that tech firms may not be able to grow a new business rapidly, like how they did in the past in China. That’s really dampening the already-fragile sentiment.”

In coming weeks investors will find out how much Beijing's ongoing clampdown has impacted the profitability of some of the biggest tech firms as they release earnings; Alibaba will report on Thursday.

“Nerves are on edge this week as Alibaba reports earnings — in the midst of war, additional Hong Kong curbs and regulatory oversight,” said Wai Ho Leong, strategist at Modular Asset Management.


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