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Alibaba relies on discretionary spending that could be hit by a Chinese slowdown.
Greg Baker/AFP via Getty Images
Chinese stocks were tumbling Monday, extending a selloff from last week amid pressures on multiple fronts, including Covid-19 lockdowns in China and regulatory threats on both sides of the Pacific.
Shares in some of the country’s largest companies saw stark declines. E-commerce giant
Alibaba
(ticker: BABA) fell 10.9% in Hong Kong trading, with its U.S.-listed stock was down nearly 5% in U.S. premarket trading.
Peer
JD.com
(JD) dropped 14.8% in Hong Kong and its U.S. shares fell more than 5%. Internet giant
Tencent
(0700.H.K.) tumbled 9.8% in Hong Kong. The Wall Street Journal reported that the Chinese technology giant faces a record fine for violating Chinese anti-money-laundering regulations. The wider
Hang Seng Index
ended 5% lower.
Steep declines weren’t seen only in tech companies. While the
Hang Seng Tech Index
dropped 11%, China’s embattled property sector also plunged. The Hang Seng Mainland Properties Index lost 12.6% in Hong Kong trading.
“China’s equity selloff has extended from last week through to Monday, with the offshore Hang Seng index down … on tightening Covid-19 controls, ADR-related concerns, and lending and property sector headlines,” said a team led by Mark Haefle, the chief investment officer at UBS Global Wealth Management, in a note Monday.
More than 300,000 people in Hong Kong have gone into quarantine with a complete lockdown in the Chinese city of Shenzen, a major tech and industrial hub as well as a port city with a population of around 18 million.
A wave of Covid-19 threatens to complicate global supply chains and risks a wider slowdown in the Chinese economy, including a hit to consumer spending. This would be expected to impact e-commerce groups like Alibaba and JD.com , which lean heavily on discretionary spending from consumers and merchants alike.
Moreover, regulatory concerns linked to U.S.-listings of Chinese companies —American Depositary Receipts, or ADRs — remained in focus. Last week the Securities and Exchange Commission named Chinese companies that may be delisted if they don’t comply with accounting rules, and it’s expected more companies will be named soon.
The wider Asian stock market was also under pressure from the heavily indebted real estate sector, which has dragged on Asian investors for months with a steady stream of downbeat headlines. The Covid-19 outbreak in Hong Kong could cause home prices to drop by 10% in the first half of 2022, South China Morning Post reported Monday.
“It is so crazy today,” Danny Law, an analyst at Guotai Junan Securities, one of China’s biggest investment banks, told Barron’s.
“It is not easy to figure out what is the reason behind the market slump,” Law said. “The resurgence of Covid-19 in China may be one of the causes, another reason may be the increasing worries about a slowing economy in China.”
Law added that there have been rumors about regulatory pressures from China on the strengthening of internet regulations for teenagers’ spending, which is yet unconfirmed by Beijing. This kind of news can weigh on the tech secretary heavily, especially at a time of weak market sentiment, he said.
“Investors’ confidence in the Chinese tech sector may reach a very low level,” Law said. “These negative rumors may further scare them to sell off.”
Write to Jack Denton at jack.denton@dowjones.com
