U.S.-Listed Chinese Tech Stocks Erase Nearly $150 Billion In Market Value This Week As China Stokes Regulatory Fears
Shares of Chinese tech giants trading in the United States plunged Tuesday for a third-consecutive day amid intensifying concerns over China’s efforts to impose tighter regulations on its publicly traded companies, yielding market value losses of more than $140 billion for the 10 largest U.S.-listed Chinese stocks this week alone.
• As of 11:30 a.m. EDT, shares of ecommerce juggernaut Alibaba, the largest Chinese firm listed in the U.S., were among the hardest hit in the group, falling 5% Tuesday on the New York Stock Exchange and pushing its market capitalization down from $560 billion to $501 billion since Friday.
• Fellow online retailers JD.com and Pinduoduo, the second- and third-largest firms, posted similarly staggering losses, falling 6% and 7% Tuesday and wiping out about $15 billion and $19 billion in market value this week, respectively.
• In an email to Forbes, Nigel Green, the CEO of $12 billion wealth advisory DeVere Group, said the China sell-off spread to the broader Asian market this week after a leaked government memo on Friday highlighted a sweeping overhaul of the $100 billion private education industry over concerns a tutoring boom has put a heavy workload on young students.
• China’s Ministry of Education then outlined new rules over the weekend, barring private education companies from accepting foreign investments and raising capital through the stock market—a “tough new approach” that “spooked the tech sector,” says Green, noting the industry is “already on high alert” due to antitrust measures against giants like Tencent and Alibaba.
• The sell-off hit a wide array of sectors: Online-gaming company NetEase, electric-carmaker NIO and Internet firm Baidu plunged 4%, 8% and 4%, respectively, Tuesday, spurring collective losses of $25 billion this week.
• All told, the 10 largest Chinese firms trading in the United States have lost about $145 billion in market value since Friday’s close—nearly 13% of their combined value of $1.1 trillion Tuesday.
The Nasdaq Golden Dragon China index, which tracks Chinese businesses trading in the United States, is down 6% Tuesday and 13% this week. The index is at its lowest point in more than a year after posting its biggest two-day drop since 2008.
“It can be expected that some investors will swoop in and view these events as a major buying opportunity within the booming Chinese economy, and they may have a point—these shares do look like bargains,” Green said of the plummeting values, before adding: “However, they must exercise extreme caution as the situation remains highly unpredictable and any further similar actions—or even suggestions—from Beijing will mean more, sustained volatility and sell-offs.”
In a matter of days, China introduced harsh regulations targeting the nation’s education companies, showing investors how risky investing in the market can be, Tom Essaye, author of the Sevens Report wrote in a Tuesday note. “Yes, there’s a huge market and lots of growth potential, but obviously there are regulatory risks that seem to be growing larger with every passing month,” noted Essaye. In its weekend order, China’s education ministry explicitly barred “capitalized operations” among “online training institutions,” saying such companies can no longer turn a profit or raise money in the public markets. “Those who have violated regulations shall be cleaned up and rectified,” it added.
$12 billion. That’s roughly how much U.S. and European-based investment banks could lose as a result of the plunging shares in Chinese education stocks.