China tech sell-off deepens as Tencent sale spooks traders

[SINGAPORE] China's tech stocks fell once again Wednesday (Jan 5) as firms backed by Tencent Holdings came under pressure after it pared investment in the sector for a second time in 2 weeks.

The Hang Seng Tech Index fell as much as 4.2 per cent - the most since September - in a 3rd day of declines, with overnight weakness in US peers also weighing. The gauge is set for the lowest close since its inception in July 2020 with Tencent investees Bilibili, Meituan and JD.com among the biggest losers.

The Chinese tech giant cut its stake in Singapore's Sea on Tuesday (Jan 4) - selling US$3 billion of shares - sparking concerns of similar actions at other firms amid Beijing's regulatory crackdown.

China's US-listed tech shares fell overnight amid a broad selloff in the sector, with traders worried about the rise in Treasury yields putting pressure on stocks with extended valuations.

Tencent's move is aiding expectations that the firm and its rivals may pare holdings as Beijing punishes the country's tech giants for anti-competitive behaviour, including maintaining closed ecosystems that favour certain firms at the expense of others. Last month the company said it plans to distribute more than US$16 billion of JD.com's shares as a 1-time dividend.

"China's anti-monopoly rules and regulators' concerns about data privacy as well as web security may lead to more divestment in the country's Internet space in the coming months," Bloomberg Intelligence analyst Cecilia Chan wrote in a note.

Tencent controlled a portfolio of investments worth US$185 billion at the end of September, Bloomberg Intelligence estimates.

ONLINE PRESSURE

Among Tencent-backed companies, live-streaming platform operator Bilibili dropped as much as 9.4 per cent while food delivery giant Meituan dropped as much as 11 per cent. China's No 2 online retailer JD.com fell as much as 7.5 per cent and Tencent declined as much as 4.2 per cent.

"China is at the stage of implementing many tightened policies and rules that the government announced last year on the technology sector," said Linus Yip, a strategist at First Shanghai Securities. "The range-bound trading and heightened volatility may last through the first quarter."

The recent spike in US Treasury yields has also weighed on tech stocks across Asia. The MSCI AC Asia Pacific Communication Services Index dropped as much as 2.1 per cent, the most since Dec 20.

SoftBank Group-backed search engine operator Z Holdings fell as much as 4.2 per cent while chipmaker Samsung Electronics declined as much as 2.9 per cent.

The Tokyo Stock Exchange Mothers gauge, which carries shares of small- and medium-sized software-technology companies, dropped 5 per cent to the lowest since May 2020.

On a more positive note, Alibaba Group Holding outperformed after Daily Journal, a newspaper and software business that counts Charlie Munger as chairman, nearly doubled its holding of the Chinese Internet giant in recent months.

BLOOMBERG