What happened?
Recently, all the financial news for investors has been focused on the Ukraine/Russia tensions, higher inflation and the imminent hiking of interest rates.
However, if you’re a Singapore (or any) investor who’s buying Chinese shares then you’ve also got to keep a watch on the Chinese government’s ongoing crackdown on its homegrown technology giants.
If readers can recall, online food delivery and travel services firm Meituan Dianping (SEHK: 3690) was caught in the regulatory crossfire in May of last year.
Unfortunately, for those of us holding Chinese tech stocks, Meituan Dianping saw more bad news emerge last Friday.
Meituan stock plummeted to close last Friday’s trading day down a whopping 15%. This was in reaction to news that the Chinese government had released new guidelines that asked food delivery platforms to cut fees.
More than US$25 billon of market value was wiped off Meituan’s market cap, in a sign that the Chinese government is far from done on its regulatory tech purge.
So what?
Unfortunately, the spotlight on Meituan is far from over. Despite it not having the same influence as the likes of Alibaba Group Holding Ltd (SEHK: 9988) (NYSE: BABA) and Tencent Holdings Ltd (SEHK: 700), the tech firm is still feeling the heat from Chinese regulators
According to a statement from the National Development and Reform Commission (NDRC), online food delivery platforms were also instructed to offer up preferential rates to restaurants in regions that were hard hit by the Covid-19 pandemic.
This knock to Meituan shares also had an impact on the broader market in Hong Kong as the Hang Seng TECH Index, which tracks many of the city’s biggest listed Chinese tech companies, fell over 3%.
Earlier today, the carnage in the stock market didn’t let up with Meituan and Alibaba shares finishing the day both down around 4% and Tencent declining 5%.
The immediate fallout was perhaps no surprise given how much scrutiny the biggest tech companies have come under in the past 18 months.
The key question for investors is; where does it go from here?
Now what for investors?
If the sell-off in 2021 wasn’t a warning enough, then the latest guidelines by China should be a stark reminder that the crackdown is far from over.
Alibaba and Tencent have recently come under scrutiny in the US and have been added to a blacklist of companies that trade counterfeit goods.
Stuck between a rock (the Chinese government) and a hard place (the US government), being a tech company in China right now is far from easy.
Similarly, tech investors in China are feeling the pain from “common prosperity” and it’s anyone’s guess when the crackdown will end.
As I’ve written about previously, if investors want to be exposed to China, then it might be worth looking at other sectors less impacted by government regulation, such as renewable energy and semiconductors.
Alternatively, if you’re looking for broad exposure then being invested in an exchange-traded fund (ETF) – that tracks the onshore A-shares markets in Shanghai and Shenzhen – could also be an option.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares in any companies mentioned.
