12 Nov 2020

Chinese tech stocks lose $250 billion in 2 days

Chinese tech stocks lose $250 billion in 2 days

Just when you thought that the largest IPO in history is going to boost the ailing stock markets, a sudden U-turn has rocked the tech sector, particularly Chinese tech stocks, wiping off billions of dollars off their valuations in just two days, amidst signs of tougher regulations ahead.

With the Ant Group IPO suspended, Alibaba received the bulk of the knockout blow with $97 billion shaved off its market value while its close rival, JD.com saw $26 billion disappear from its valuation. Meanwhile, prominent Chinese tech titans such as Meituan, which offers services similar to Groupon and Yelp, and gaming company Tencent, have also shed billions of dollars in market value.

Experts say that the routing of Chinese tech shares are attributed to the impending tougher regulations which are intended to “prevent internet monopolies”. China’s apex regulator, the State Administration for Market Regulations, state on its website, that the guidelines are still in draft format and it continues to welcome suggestions for revisions and modifications.

Experts postulate that so long as the scale and scope of the new rules remain murky, tech stocks are likely be remain under pressure. In a double whammy, investors and speculators are pulling out of tech stocks and redirecting their focus on healthcare and pharma stocks such as Pfizer which recently announced a major breakthrough in COVID-19 vaccine.

Although the Singles Day online shopping fest continues to break records for Chinese e-commerce companies again this year, regulators are scrutinizing the e-commerce giants very carefully for errant behaviour that are detrimental to the interests of the public and consumers. This sentiment was also echoed by the China Consumers Association, a state-backed national consumer rights group, which urged “rational consumption” and state-run news network CCTV which also called for “fewer tricks” by shopping platforms.

Until more clarity on the new rules emerge, investors remain wary of pumping more capital into the tech sector.