A sharp drop in Chinese tech stock prices is seen as a major buying opportunity for some investors, despite a brief recovery, but they must exercise extreme caution, as fears mount over a regulatory crackdown by the government in Beijing.
In a week of plummeting values for China’s tech giants, Tencent’s shares lost 10%, Alibaba dropped 7.7%, JD.com shed 8.9% and Meituan fell 17%.
Hong Kong’s Hang Seng benchmark tumbled to 24,995 points on Tuesday and appreciated 5% by Thursday to 26,200, far below the close of 27,766 on July 22. Meanwhile, in mainland China, the Shanghai Composite gained 2% to 3414 on Thursday from the day before low of 3355, but has a long way to catch up from the July 22 high of 3575, shedding 6% in a week.
“The sell-off in Chinese tech stocks is making markets become increasingly jittery over concerns of a regulatory crackdown by Beijing,” said Nigel Green, chief executive and founder of deVere Group, one of the world’s leading advisory, asset manager and fintech organisations.
Green explained that the sell-off has been focused on China’s $100 billion private education industry following a leaked government memo highlighting incoming new, tougher severe regulations which will prevent companies in the sector accepting foreign investments, raising capital through the stock market, or teaching outside school hours, amongst other rules.
“This tough new approach being taken by Beijing has spooked the tech sector which is already on high alert amid fears that the government wants more control over private enterprise,” the deVere CEO said.
“The effect has been wiping hundreds of billions of market value from China’s largest tech giants.”
Green added that some investors could be expected to swoop in and view these events as a major buying opportunity; as a chance to top-up their portfolios within the booming Chinese economy.
“They may have a point – these shares do look like bargains.
“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.
“It could be a long time until there is clarity.”
A good fund manager, says the deVere boss, will help investors seize the opportunities and sidestep the risks by seeking out the inevitable winners and losers from the Chinese government’s possible regulatory crackdown.
“As always, investors should be as diversified as possible in order to maximise returns relative to risk. This means geographical, sector and asset class diversification.”
Green concluded that, “as China rolls out another round of regulatory tightening, stock markets will be impacted, and investors must tread carefully to avoid unnecessary risks and to capitalise on the potential opportunities.”