China liquor makers, cosmetics firms, online pharmacies convulse as regulatory fears ensnare more stocks

[BEIJING] China's rolling regulatory crackdown on unfair markets found more targets Friday among liquor makers, cosmetics firms and online pharmacies.

A slew of commentaries and reports in state media called for tougher oversight to protect consumers as President Xi Jinping's campaign to address inequality broadens its reach through the technology, health and technology sectors.

That's piled more misery on investors with global institutions dumping US$1 billion worth of mainland shares via trading links on Friday while US-traded Chinese stocks endure weeks of pain.

"With regulation worries and the beginning of a downturn in economic growth, it's extremely hard to make money right now," said Hou Anyang, fund manager at Frontsea Asset Management in Shenzhen. "At this rate even the winning stocks in electric vehicles and chips may not stay strong much longer."

Distillers led a decline in the benchmark CSI 300 Index after it was reported they will meet regulators over market order. The nation's biggest liquor maker, Kweichow Moutai Co, plunged as much as 5.8 per cent.

Online healthcare stocks also dropped, with JD Health International down as much as 14 per cent after the People's Daily urged for more protections and guarantees for prescription drugs sold through the Internet.

The CSI gauge has dropped about 3.6 per cent this week and is headed for the lowest close since July 28 while the Hang Seng Index is having its worst week in more than a year as it teeters on the edge of a bear market.

State media also turned up the heat on the cosmetic surgery industry, calling for more scrutiny of incomplete regulations and increasing medical disputes. Ping An Healthcare & Technology Co dropped by as much as 18 per cent, its biggest intraday decline ever.

The plunge in these new sectors comes at a time when investors have become acutely sensitive to which companies may come into the crosshairs of officials. Over the past weeks, there's been selloffs in everything from private tutoring firms to e-cigarettes, games and infant formula.

The pivot toward sharing prosperity in society translates into "lower earnings and higher risk premium, and quite a lot of uncertainty", Sean Taylor, chief investment officer APAC at DWS Group, told Bloomberg Television. "We've had regulatory changes in the past and generally they've been quite good for bigger stocks because they've cleared up competition. But this is very different because we don't know where the bottom is."

Tech is an example of what seems like a never-ending squeeze, with new rules or criticism coming up every week. China has passed legislation setting out tougher rules for how companies handle user data, a move pushing forward its campaign to curb big tech's influence.

Alibaba Group Holding sank to another record low in Hong Kong on Friday, while the Hang Seng Tech Index fell as much as 4.5 per cent. The moves added to a wave of selling in the industry Thursday after China said it was studying proposals to further ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry.

"If you see the numbers of issues surrounding the tech sector - antitrust, how they deal with workers' rights and with the gaming sector, all these issues require a bit more clarity in terms of where the regulators are going," Tai Hui, chief Asia market strategist at JPMorgan Asset Management, told Bloomberg Television. "What would we consider to be the fair value of these companies?"

Meanwhile redemptions from China equity products could be picking up pace as the year-to-date underperformance of some funds is "causing additional difficulties in recapturing substantial inflows in the short term", Morgan Stanley quant analysts wrote in a note this week.

BLOOMBERG