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.
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.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.