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Chinese digital payment company Alipay in Shanghai. Regulators have cracked down on Internet companies with antitrust measures.
Hector Retamal / AFP via Getty Images
Chinese stocks fell on Friday as regulators fined a dozen companies, including
Tencent Holdings,
amid the ongoing antitrust crackdown on Beijing’s Internet companies. In addition, the chief executive of the Ant group resigned and the reports came to light
Participation of the Alibaba group
could face a heavy fine, although regulatory measures are milder than those aimed at Ant.
Investors have been watching closely how regulators deal with Ant, and Alibaba (BABA) and Ant co-founder Jack Ma, whose comments last fall irritated Beijing officials over the elimination of the long-awaited exit. the Ant. Ma’s low profile late last year caused concerns about her location until she recently reappeared at a public event.
The Wall Street Journal, citing officials familiar with regulator thinking, reported Friday that Alibaba could face softer regulatory treatment as long as it distances itself from Ma and is more in line with the Communist Party.
Broadly speaking, policy watchdogs view the avalanche of measures as a wake-up call, but one that did not jeopardize the long-term viability of companies. “The Alibaba movement suggests that Beijing will only pursue a slight regulatory response around the business practices of technology platforms, sending a message to take care and clean up some of the bad business practices, but will not take heavier measures given the importance of Alibaba and Ant to short-term financial stability and long-term economic growth, ”Paul Triolo of the Eurasia Group said in an email.
This sentiment was echoed by the Lombard economist TS, Rory Green, who described the last period of developments as a positive sign. “Beijing has indicated its political point and is now focusing on antitrust, data and valid financial risks. The forthcoming regulation on data exchange and monopolistic practices will benefit small, medium-sized businesses, small technology companies and the economy at large, ”Green said in an email.
But investors were still baffled, with the
KraneShares CSI Internet in China
the publicly traded fund (KWEB) fell 4% to $ 83.96. Actions of
Tencent Holdings
(700. Hong Kong) fell 4% to HK $ 650.50 overnight, while Alibaba shares fell 4.5% on Friday morning to $ 229.82. The sector has been under a cloud since the abandonment of the stock market of antiques and had been successful recently, as investors focus more on market shares that have lagged behind during the pandemic, with the ETF of Internet in China which fell 15% last month.
The year could lead to more regulatory and antitrust developments as China discovers its focus on the digital economy, and there is more clarity on Beijing’s fines against Alibaba and how it can get companies restructured. .
“Alibaba’s research is just the beginning. Most technology companies will likely be subject to antitrust research. And the antitrust fines will be bigger than before, ”says Winston Ma, former general manager and head of the U.S. office of China’s sovereign wealth fund, China Investment Corp., and co-author of Unicorn hunting: how sovereign wealth funds are transforming investment in the digital economy.
According to the Wall Street Journal, Chinese regulators are considering imposing a fine on Alibaba that could exceed the $ 975 million fine
Qualcomm
faced in 2015 for anti-competitive practices. Although it is a large number, it is relatively manageable given Alibaba’s financial strength. Possible divestments and the reduction of certain practices are also taken into account. While fund managers don’t expect these developments to ruin the long-term appeal of companies like Tencent and Alibaba, it could weaken the top of growth projections for the big internet. minority acquisitions and investments could gain greater control and could decrease market share gains and the variety of ways companies can earn revenue from their immense user bases, fund managers don’t see these developments significantly increase long-term prospects.
Sentiment around the two companies could also diverge, with the focus on Alibaba considered more specific to the company related to Ma’s comments and questions about Ant Group’s financial business model, says Brian Bandsma, emerging market manager of Vontobel Quality Growth, which has reduced stakes in Alibaba but not Tencent. While Tencent may not come out unscathed, Bandsma says it could be less vulnerable as regulators don’t focus on video games and advertising on which Tencent depends more.
More generally, fund managers have looked elsewhere beyond China’s large internet stocks, especially as the global economic recovery takes advantage. While the latest development may have reduced the risk for Alaba’s multiple, rising interest rates and more difficult year-on-year growth comparisons will continue to pose a problem for some of last year’s big internet winners, says Laura Geritz, emerging markets manager who runs Rondure Global Advisors. That said, it has little weight in the Internet sector, rather than favoring tourism-related businesses such as convenience stores in Thailand and the Philippines and those with a good position for economies to reopen year-round.
Food for Investors: Proceed with caution around China’s Internet stocks, not only because of continued regulatory uncertainty, but also because investors are becoming more willing companies to benefit as l world economy recovers from pandemic.
Write to Reshma Kapadia at [email protected]