China tech stocks sink on DiDi delisting plan, regulation woes

Bloomberg

China’s technology stocks slumped as trading resumed in Hong Kong after the long weekend, with continued concern over government regulation and a potential delisting of US-traded shares dampening sentiment.
The Hang Seng Tech Index declined 3.8% from its closing level on April 14, with video-game streaming site Bilibili Inc plunging almost 11%. China is starting a two-month “clean-up” inspection of the live-streaming and short video sectors to crack down on illegal behaviours, according to a statement posted on the Cyberspace Administration’s website.
Tech shares are struggling again after a brief mid-March rally, as Beijing’s crackdown continues despite a pledge by authorities to support the battered sector. The risk of local firms getting kicked from American exchanges also lingers. Ride-hailing giant DiDi Global Inc tumbled in New York after saying it’s planning to delist its US-traded shares before finding a new venue for the stock.
“News of DiDi’s plan to delist its US-traded shares has dragged down market sentiment and hurt some tech shares today,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd.
DiDi’s plan comes amid a US-China spat over audit of Chinese firms trading on American exchanges. Beijing has been seeking to grant more audit access to foreign regulators in a bid to keep shares listed overseas, but
investors still remain wary.
Bilibili was the worst performer on the Hang Seng tech gauge on Tuesday, followed by GDS Holdings Ltd., which was down more than 9%. China’s National Radio and Television Administration also told live streaming platforms to step up management of streaming of online games, according to a notice last week.
Separately, Bilibili denied a rumour that it is laying off the the live streaming department, and said the company will keep investing in the business and is currently hiring more than 40 positions, The 21st Century Business Herald reported.
In response to a Bloomberg inquiry on Tuesday, a Bilibili spokesperson said that the company’s live streaming business is “developing normally, and the gross profit margin has continued to increase for three consecutive years.”
The regulatory curbs on video streaming and also the layoff reports on Bilibili might have affected sentiment, said Steven Leung, an executive director at UOB Kay Hian Ltd.
The Hang Seng Tech Index ended Tuesday’s session at its lowest since March 15 — the day before Chinese authorities announced a series of promises to stabilise financial markets, including re-assuring investors that a sweeping crackdown on internet firms was nearing its end. The broader Hang Seng Index slipped 2.3% on Tuesday.
The Nasdaq Golden Dragon China Index falls 2% overnight. Richly-valued tech stocks globally have come under pressure as worries that the Federal Reserve will tighten policy at a rapid pace to quell inflation have spurred a rally in Treasury yields.
“Will value stocks finally outperform growth peers? What will be the best-performing EM stock market for the rest of 2022? “Rotations” is the theme of this week’s MLIV Pulse survey.
Stocks on the mainland also ended lower, even as the central bank announced a spate of measures to help an economy which has been hit by lockdowns to control the current Covid outbreak. The People’s Bank of China had also reduced the reserve requirement ratio for banks on Friday.
The benchmark CSI 300 Index lost 0.8%, capping a third day of losses. Investors have said that China loosening grips on its tight Covid-19 containment policy is key to turning the tide for local shares.
“The market thinks that the PBOC’s support is not enough as the Covid situation might not improve in the short run,” said Ivan Chow, president of Imperial Financial Group in Hong Kong.