The nascent rebound in Chinese tech hit a brick wall Thursday.
After faltering during the previous session, the Hang Seng Tech Index took a 2% dive, while the broader city gauge fell 1%.
Sentiment was undercut by disappointing earnings from ByteDance competitor Kuaishou, which sank more than 9% (figure below) after reporting a drop in active users and a net loss that exceeded estimates.
If you zoom out on that chart, it’s bad — really, really bad. Kuaishou was trading above 400 in February. Earlier this month, the shares plunged when lock-up expiry conspired with a comical People’s Daily commentary lamenting what the Party mouthpiece called the “irrational star-chaser phenomenon” on streaming platforms. The other red bar in the Kuaishou chart (above) coincided with the publication of that commentary.
“During the production and broadcasting of online audiovisual programs, platforms should strictly control idol development initiatives,” the Daily said, adding that sites are “duty-bound” to ensure their platforms are “civilized, healthy online spiritual homes.” I almost never recommend reading propaganda, but I’ll make an exception for this. The original, here, is nothing short of hilarious. (Fair warning: That link is to the official People’s Daily website, which is not secure, figuratively or literally.)
In any event, the bounce in the Hong Kong tech gauge now feels like it may be of the “dead cat” variety (figure below).
There’s just too much ambiguity on the regulatory front for anyone to feel comfortable. In the simplest possible terms: Shares remain extremely vulnerable to any and all headlines out of Beijing.
At the same time, mainland shares sank 2% Thursday thanks, in part anyway, to a 4% decline for Kweichow Moutai. The PBOC injected a net 40 billion yuan in short-term liquidity for a second day.
Expectations for more RRR cuts and targeted easing measures are building as the recovery slows. Late Thursday, the PBOC and China’s banking regulator indicated Beijing will support smaller businesses affected by the virus. That includes exporters, retailers, hotels and restaurants. The pledge came courtesy of a joint press release from the Commerce and Finance ministries. The statement urged banks to extend credit to such firms in order to ensure the economy stays in a “reasonable range.”
Meanwhile, The State Taxation Administration is poised to crack down on tax evasion among high earners. As Bloomberg noted, recapping a statement posted to WeChat, “for major crime cases, punishment will be made public and logged into the companies’ or individuals’ credit records shared nationally, in order to promote a fair taxation and business environment.”
” sites are “duty-bound” to ensure their platforms are “civilized, healthy online spiritual homes.” ”
That certainly adds a confounding factor to stockpicking!
As we’ve discussed before, the CCP seems to be pursuing multiple goals, not just economic or social but also cultural. Tricky waters indeed.
I attended a seminar where an American consultant to the Chinese regulatory authority said he personally would never buy a Chinese stock due to their business practices and the lack of transparency