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Chinese digital payment company Alipay in Shanghai. Regulators have cracked down on Internet companies with antitrust measures.
Hector Retamal / AFP via Getty Images
Chinese stocks fell on Friday, while regulators fined a dozen companies, including
Tencent Holdings,
amid Beijing’s antitrust crackdown on Internet companies. In addition, the executive director of the Ant group resigned and reports appeared
Alibaba Group Holding
could face a hefty fine, although softer regulatory measures than those targeting Ant.
Investors have been closely monitoring how regulators deal with Ant, and Alibaba (BABA) and Ant co-founder Jack Ma, whose comments last fall angered Beijing officials before removing the long-awaited Ant’s IPO. Ma’s low profile at the end of last year raised concerns about his place until he recently reappeared at a public event.
The Wall Street Journal, citing officials familiar with regulators’ thinking, reported Friday that Alibaba could face milder regulatory treatment, provided it moves away from the Ma and aligns more closely with the Communist Party.
Broadly speaking, policy observers see the wave of action as a warning blow, but one that has not jeopardized the long-term viability of companies. “The Alibaba movement suggests that Beijing will only pursue a light regulatory response to the technology platform’s business practices, sending a message to be careful and clean up some of the bad business practices, but will not take tougher action.” given the importance of Alibaba and Ant against short-term financial stability and long-term economic growth, ”Eurasia Group’s Paul Triolo said in an email.
This sentiment was taken up by the Lombard economist TS Rory Green, who described the latest series of developments as a positive sign. “Beijing has expressed its political point and is now focusing on a valid antitrust, data and financial risks. Future regulations on data exchange and monopolistic practices will benefit small, medium-sized enterprises, small enterprises with technological capital and the economy as a whole, ”Green said in an email.
But investors were still troubled with
KraneShares CSI China Internet
the exchange traded fund (KWEB) decreased by 4% to USD 83.96. Actions of
Tencent Holdings
(700. Hong Kong) fell 4% to $ 650.50 overnight, while Alibaba shares fell 4.5% on Friday morning to $ 229.82. The sector has been under a cloud since the elimination of the IPO Ant and has had recent success, as investors focus more on the market shares left behind during the pandemic, with China’s Internet ETF down 15% in last month.
The year could bring more regulatory and antitrust developments as China approaches its digital economy – and there is more clarity on Beijing’s taxes on Alibaba and how it could get companies to restructure Ant.
“The Alibaba investigation is just the beginning. Most likely, several technology companies will be the subject of an antitrust investigation. And antitrust fines will be higher than before, “said Winston Ma, former general manager and head of the North American bureau of China’s sovereign wealth fund, China Investment Corp. and co-author of Unicorn hunting: how sovereign wealth funds reshape investment in the digital economy.
According to The Wall Street Journal, Chinese regulators are considering imposing a fine on Alibaba, which could be higher than the $ 975 million fine
Qualcomm
facing in 2015 for anti-competitive practices. Although it is a large number, it is relatively light, given the financial strength of Alibaba. Possible divestments and the reduction of certain practices are also considered. While fund managers do not expect these developments to deteriorate the longer-term attractiveness of companies such as Tencent and Alibaba, they could shave the top end of growth projections for internet giants. could diminish market share gains and the range of ways companies can monetize their huge user bases, fund managers do not see these developments significantly increase long-term prospects.
Feelings around the two companies could also diverge, with Alibaba focusing more specific to the company on Ma’s comments and questions about the Ant Group’s financial business model, says Brian Bandsma, emerging market manager at Vontobel Quality Growth, which reduced holdings in Alibaba but not Tencent. Although Tencent may not come out unscathed, Bandsma says it may be less vulnerable because regulators do not focus on video games and advertising on which Tencent relies more.
In general, fund managers have looked elsewhere beyond China’s large internet stocks, especially as the global economic recovery returns. Although the latest development could have reduced the risk of multiples, rising Alibaba interest rates and more difficult year-on-year growth comparisons will continue to pose a problem for some of last year’s big internet winners, says Laura Geritz, an emerging market manager leading Rondure Global Advisors. That being said, it underweight the internet sector, favoring tourism-related companies instead, such as convenience stores in Thailand and the Philippines, and well-positioned ones for year-round economies.
Investor Assistance: Be cautious about China’s Internet stocks, not only because of the ongoing regulatory uncertainty, but also because investors are moving more into companies that are ready to benefit as the global economy recovers. the pandemic.
Write to Reshma Kapadia at [email protected]