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Chinese technology stocks listed in the US are set for their worst month since the global financial crisis after investors dumped shares following a regulatory crackdown by Beijing.
The Nasdaq Golden Dragon China index, which tracks Chinese tech stocks listed in New York, has fallen 22 per cent in July, putting it on course for its biggest monthly fall since 2008. Shares in Chinese internet groups Tencent and Alibaba have dropped about 16 per cent and 10 per cent respectively.
The sharp declines come as Beijing has launched a regulatory assault on companies that handle large amounts of data and education businesses, as well as an overhaul of how Chinese groups list on stock markets outside the country.
On Friday, at a high-level meeting chaired by President Xi Jinping, the Chinese Communist party’s top leaders said they would “improve the system of regulatory supervision for companies listing overseas”, according to a report from state news agency Xinhua that did not give further details.
Big Chinese tech stocks fell again on Friday, with Hong Kong’s Hang Seng Tech index dropping 3.3 per cent.
This month’s stock market losses appear to have unsettled Beijing. Policymakers have tried to reassure global and domestic investors that the avalanche of regulations and punitive measures is not meant to bury China’s biggest internet groups, prompting a brief rally in their shares on Thursday before Friday’s falls.
Beijing’s crackdown began shortly after ride-hailing platform Didi Chuxing raised $4.4bn in a New York initial public offering at the end of June, despite being warned privately by authorities to delay due to data security concerns.
On Thursday, reports that Didi was considering going private boosted its hard-hit shares by almost 50 per cent in pre-market trading before the company issued a denial.
People familiar with Didi’s listing said any move to take it private at or near its IPO price would mostly benefit hedge funds that had bought in after it went public.
But one big investor still holding a stake in the company said such a move would deliver a “big recovery for the China sentiment” in markets and be “amazing” for minority shareholders.
Beijing’s cyber security regulator subsequently announced it planned to review all overseas listings of Chinese groups with more than 1m users on national security grounds.
China issued an effective ban on the country’s $100bn private tutoring industry at the weekend, sparking worries of a broader crackdown on tech companies listed overseas.
Thomas Gatley, an analyst at Gavekal Dragonomics, a research group, said that while the intensity of Beijing’s crackdown could soften as policymakers sought to stabilise markets, there was “no going back to the freewheeling expansion of years past” for China’s internet platforms.
“Rather than seeing the internet sector as a national vanguard of innovation, policymakers increasingly see it as a source of social problems and security risks,” he said.
The CSI 300 index of Shanghai- and Shenzhen-listed blue-chips fell almost 8 per cent in July, worse than the rout it suffered at the start of the coronavirus pandemic early last year.
International investors that trade mainland stocks via market link-ups with Hong Kong have been net buyers of Chinese equities in July, according to Financial Times calculations based on Bloomberg data. For every dollar pulled out of Shanghai, offshore investors have put more than three into Shenzhen, boosting foreign holdings of mainland-listed equities by about Rmb10.8bn ($1.7bn).
Shenzhen’s tech-focused ChiNext index has been one of the best-performing major Chinese indices over the past month, falling just 1 per cent.
Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said investors were likely to shift more of their China exposure from New York to Hong Kong and the mainland, where semiconductor, solar energy and biotechnology stocks have rallied. These areas are priorities for Beijing’s industrial policy.
“Investors have dumped all their internet-related shares and put all the money into semiconductors,” said Dickie Wong, head of research at Kingston Securities in Hong Kong. “If you invest in China or in China-related companies, it’s policy, policy, policy.”