Beijing is increasing pressure on local technology companies, whose activities have long been regulated in accordance with the policy of non-interference.
Shares of Alibaba Group, Tencent, and other Chinese internet companies are falling amid Beijing's struggle with a monopoly on the e-commerce and payment services market. The Hang Seng TECH index, which includes the 30 largest technology companies listed on the Hong Kong Stock Exchange (HKEX), lost almost a thousand points, falling by 11% per day.
On Tuesday, the State Administration of China Market Regulation (SAMR) published a draft of new rules for the operation of Internet platforms. The document regulates business rules aimed at eradicating monopolistic practices.
The rules, for example, impose restrictions on companies using the Variable Interest Entity (VIE) mechanism. The last major Chinese internet companies are used to attract foreign investment or listing in foreign stock markets. The project assumes that such companies will have to obtain permission to operate.
Beijing is increasing pressure on local technology companies, whose range of services is highly diversified. Last week, another bill was published that sets limits on parts of online lenders' operating zones and imposes stricter licensing requirements.
Investors are trying to assess how much impact the new regulatory rules will have on the business of Alibaba, Tencent, JD.com, and other leaders of the Chinese market. According to Bloomberg, companies in the HSTECH index have lost a combined total of nearly $260 billion in market capitalization over the past two days. Almost every broker whether they’re a CFD broker or a stock broker prioritizes Chinese tech stocks and often base promotions solely on them. However, each broker has their own approach to reacting to market trends and delivering information to their customers. Therefore, it’s highly advised that traders don’t take a signal from their service provider as hard fact, it’s always good to re-check on other official sources.
First of all, the shares of Chinese companies were influenced by the results of the US presidential election. On the one hand, Democratic candidate Joe Biden is a much-preferred figure for China's leadership: he is openly in favor of the development of the global economy and is likely to reverse Donald Trump's decision to limit trade with China. We can remember that Trump even in 2016 was against China’s “unfair” trade and because of that he started a trade war.
On the other hand, Biden calls the struggle for human rights in developing countries, including China, one of the priorities of his foreign policy. His victory, therefore, promises many more advantages to Hong Kong, which has recently been a political opponent to mainland China.
Pfizer and BioNTech also reported that the new coronavirus vaccine developed was also an important global factor affecting Chinese equities. It is still unknown whether China will have access to the new vaccine, but the impressive results of foreign developers, in any case, determine the share price of Chinese companies.
Chinese indices showed divergent dynamics, with Hong Kong companies performing better than mainland China. In particular, the CSI 300 index fell by 0.55%, ChiNext - adjusted by 1.45%, Hong Kong's Hang Seng, on the contrary, increased by 0.85%.
USD/CNY weakened 0.35% to 6.6050, USD/CNH slipped 0.39% to 6.5945 and USD/HKD rose 0.01% to 7.7532.
At the same time, China's domestic economic statistics have so far proved disappointing. According to the results of October, one of the basic economic indicators - the consumer price index rose by only 0.5%, which was the minimum value for 11 years. In many ways, these statistics also influenced the results of Chinese companies.
Analysis of Chinese shares
In the Hang Seng index, almost two-thirds of the securities showed some growth in quotations, including HSBC and CNOOC. At the same time, shares of Chinese IT giant Alibaba Group fell by 5.1%, although in any case, they show an increase of 36% since the beginning of the year.
In turn, the emergence of an effective vaccine against coronavirus could not but affect the shares of air carriers - because investors again believed in the resumption of transport. As a result, shares of Hong Kong Cathay Pacific rose by 14.1%, and China Eastern Airlines from mainland China - by 3.1%.
The CSI 300 index on the daily chart came close to the upper limit of the current consolidation range at 4515-4900 points and is trying to break through the resistance level, according to the technical analysis of shares of Chinese companies. However, given the signs of overbought, the shares of Chinese companies are still unlikely to be able to break higher.