While the world was fixated on the standoff between the West and Russia following Vladimir Putin’s brazen decision to recognize Ukraine’s separatist republics, Hong Kong shares took another sharp leg lower.
This is (very) topical and should be monitored closely. The Hang Seng Tech gauge fell another 2% Tuesday, hitting a new “since inception” nadir.
It was the third consecutive large daily decline and underscored heightened concerns over a prospective new crackdown by Beijing.
Read more: Is Xi Prepping A New Crackdown On Chinese Mega-Tech?
Hong Kong shares are simply beset. Try as I might, it’s hard to conjure an adjective sufficient to convey how onerous the ever-present threat of new regulatory scrutiny is for Chinese shares, especially Hong Kong-listed mega-caps.
Xi’s heavy hand is a storm cloud that refuses to lift. The threat of lightning, thunder and torrential downpours hangs over sentiment every, single day. The most recent declines for tech shares brought the combined losses on the Hang Seng Tech gauge to $1.6 trillion from last year’s peak.
It feels like the scope and duration of this rout goes unnoticed by most investors these days, likely because fatalism and despondency set in months ago.
Consider that the index shown in the visual (above) sat at 11,000 this time last year. This is a selloff on par with the GFC crash in US equities. And it’s still going.
It’s entirely possible that Xi will never let mega-cap Chinese tech take off again. That risk isn’t something most investors are capable of comprehending. Beijing may decide to siphon profits in perpetuity via a combination of regulations, restrictions and fines. Xi isn’t going to allow these companies to print money the way their US peers do. Or at least not without paying whatever he decides is the appropriate price for a license to mint.
Alibaba crumbled on Tuesday following reports that Beijing is conducting what sources told Bloomberg is the most comprehensive review of banks’ and individuals’ exposure to Jack Ma’s Ant Group yet (see the linked article above if you missed it).
The shares are down ~10% in three days (figure above). “US stock investors eyeing geopolitical tensions have concerns beyond Russia-Ukraine tension,” Bloomberg’s Felice Maranz said, in a short blog post. “China-based firms trading in the US are sliding [and] that will contribute to [any] pressure on the NYSE FANG+ Index, which includes hard-hit Alibaba.”
Note that this isn’t confined to stocks. At one point Tuesday, spreads on Meituan’s 3.05% 2030s widened almost 20bps. Spreads on an Alibaba note due 2031 were the widest since issuance. The company reports later this week. Profits are seen falling by almost two-thirds.
Over just three sessions, Alibaba, Tencent and Meituan lost a combined $100 billion in market value.
But hey, look at the bright side. It could be worse. They could be Facebook.
L2Y (i.e. roughly since pandemic start) FB -4% BABA -47% . . . FB has normal albeit large business problems, BABA has existential problems.
Another nail (Putin’s move on Crimea, Brexit, Yellow Vest movement, Trump election, pandemic, Putin’s move on Ukraine) in the coffin of Globalization 3.0. Medium- to long-term implications for inflation?
Can’t help but wonder how much of that $1.6T lost valuation is tied to Chinese private sector shares pledged as collateral for loans with the proceeds invested for “diversification” in, say, the property sector … 😉 These tech companies with (formerly) richly-valued currency and aggressive owners would likely have a decent concentration of that sort of business. Past margin call messes tied to share pledging resulted in some reforms, I believe, but I know the practice is still widespread. Ironically, when the common prosperity drive began, various big tech controlling shareholders pledged or donated shares to Xi’s worthy causes – which have presumably been tanking ever since. I guess they’ll have to mark to market any political goodwill they bought. It’s just all so unjust for China’s poor 1%-ers! Seriously, though, I wouldn’t be surprised to see a pledged share shoe drop at some point.