US-listed Chinese stocks fall on regulatory fines and Covid risks

US-LISTED Chinese stocks fell sharply on Monday (Jul 11) as authorities hit tech giants with regulatory fines and Covid outbreaks renewed concern over lockdowns, sparking investor jitters about the outlook on the group.

The Nasdaq Golden Dragon China Index tumbled 7.1 per cent, the most since May. Alibaba Group Holding was among top decliners, plunging 9.4 per cent after regulators fined the company for not properly reporting past transactions. Tech peers JD.com and Baidu slid 3.9 per cent and 5.7 per cent respectively, while travel stock Trip.com sank 6.3 per cent.

In June, the Nasdaq Golden Dragon index staged its best month since early 2019 with a 16 per cent rally, but that has taken a pause recently amid a 2-week losing streak as investors rushed to take profit.

China's antitrust watchdog handed out a 2.5 million yuan (S$523,009) fine to Alibaba's subsidiaries for skipping reports on 5 deals, according to a statement, while Tencent Holdings was also fined. Still, the regulator said it will fully support the development of the companies involved.

"I would view this as part of the final rectification process the authorities alluded to in recent speeches," said Adam Montanaro, investment director at Abrdn. "Clearly there has been some fast money taking profits but the fundamentals remain attractive."

Uncertainty around the government's crackdown on the tech industry has been a key risk preventing investors from adding exposure to Chinese stocks. On Friday, Full Truck Alliance and 3 other trucking service platforms were summoned by China's Ministry of Transport over issues including illegal price-cutting, leading to an intraday drop of 9.3 per cent in the company.

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There's some speculation that the yearlong crackdown on Chinese Internet firms might be receding. Bloomberg Intelligence analyst Catherine Lim said fines may be nominal and the government has indicated that it aims to close cases on companies such as Alibaba and Tencent.

Covid flare-ups in Shanghai also weighed on sentiment. The city found its first case of the BA.5 Omicron variant sub-strain and daily new cases climbed to the highest since late May. Shanghai is imposing more rounds of mass testing, 2 weeks after officials declared victory over Covid. BLOOMBERG