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Home / Business / Why the antitrust sell-off of Chinese technology stocks may be overstated

Why the antitrust sell-off of Chinese technology stocks may be overstated



Alibaba (BABA), Tencent and many other Chinese technology stocks have recently come under pressure due to new regulatory issues, especially for companies that are deemed to have a monopoly.

However, it is worth remembering that this is not the first time we have seen such a sell-off among Chinese technology companies, and the previous decline usually disappears quickly.

On November 3, after online payment and financial services giant Ant Group (Alibaba owns about 33% of the shares) canceled planned IPOs in Hong Kong and Shanghai, Chinese technology stocks plummeted. The decision was made after Ant’s controlling shareholder/Alibaba co-founder Jack Ma and Ant’s senior management were convened by four Chinese regulatory agencies to attend a meeting.

Many Chinese technology stocks rebounded later this week, but due to concerns about Beijing’s draft antitrust guidelines aimed at ending the improper conduct of Internet monopolies, there was a new round of selling on Monday.

It is worth noting that the guidelines criticized some practices. If these practices are changed, it may slightly affect the bottom line of some major Internet platforms in China, but it may not have much impact. These practices include selling goods at different prices to different customers, selling goods below cost (acting as a loss leader), and preventing merchants from selling goods on competitors’ platforms.

Since the close on Friday, Alibaba’s stock price has fallen 1

0%, Tencent’s stock price has fallen 8%, and JD’s stock price has fallen 11%. In Hong Kong, the share price of Meituan, a leader in food delivery services, fell 16%.

Antitrust guidelines have overshadowed Singles’ Day shopping activities like Alibaba and JD.com. Counting sales starting this year than usual, Alibaba announced total sales of “Double Eleven” products at 498.2 billion yuan (75.1 billion US dollars).

The guide does remind Chinese technology companies of the regulatory uncertainty they must deal with. This uncertainty, coupled with concerns about potential accounting issues and the variable equity entity (VIE) structure used by these companies to list on foreign exchange exchanges, is very much in line with the valuation discounts that Chinese technology companies usually offer to their US counterparts. Big relationship. Have a similar growth situation.

At the same time, it is worth remembering that due to regulatory concerns, the previous sell-offs of some well-known Chinese technology companies eventually led to a reduction in buying opportunities.

For example, after the government severely cracked down on medical advertisements displayed on its search pages, Baidu (BIDU) was sold in the spring of 2016. However, the stock eventually recovered its losses and soared to new highs in 2017 (Baidu’s stock has clearly gone through a difficult period since then, but this is due to business issues unrelated to the medical advertising crackdown).

In the second half of 2018, due to Beijing’s suspension of approval of game monetization licenses, game publishers such as Tencent and NetEase (NTES) plummeted, citing concerns about the impact of games on children. However, approvals have gradually restarted, and the current transaction prices of Tencent and NetEase are much higher than their 2018 highs.

Time will tell whether Chinese technology stocks that have been hit hard this week due to antitrust concerns will repeat themselves. But there must be some similarities.

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