Chinese tech stocks have fallen harder than their US peers

An index of the largest Hong Kong-listed tech stocks has fallen 26% in less than three weeks, reflecting how a sudden turn in the market has snowballed into significant losses for investors who are stacked in popular stocks earlier this year.

The Hang Seng Technology Index, which tracks 30 companies, including Chinese internet giants Tencent Holdings Limited.

TCEHY 4.46%

and Alibaba Group Holding Ltd., and smartphone maker Xiaomi Corp.

1810 -1.14%

—It closed Tuesday at its lowest level in 2021 and is now in bear market territory, defined as a drop of at least 20% from a recent high.

By comparison, the Nasdaq Composite closed 10.5% below the recent index high on February 12 on Monday.

Money managers say the trigger for the declines in the US and Asian markets was similar: a rapid and unexpected rise in Treasury yields, which made stocks of fast-growing companies less attractive and caused some investors to switch from technology to banking, energy and other less volatile stocks. China’s big tech players have been hit the hardest, as a flood of money from investors in mainland China has dramatically raised their stock prices and valuations.

“It’s hard to bottom out, but we see this as a healthy correction, and the market had to do it,” said Nicholas Yeo, who oversees China stocks at Aberdeen Standard Investments in Hong Kong. He said the long-term growth prospects for the country’s internet and tech giants remain intact, but their stocks are vulnerable to big swings because they were among the main beneficiaries of excess liquidity in markets during the coronavirus pandemic. .

Just a month ago, Meituan, a Beijing-based company that runs a popular shopping, food delivery, and reservation app, was flying high as China’s third-most valuable company, with a market capitalization of more than $ 300 billion. . Investor enthusiasm for Meituan’s recent expansion into wholesale grocery buying in China caused its shares to rise rapidly, despite the company making only a small profit.

Meituan has been one of the biggest victims of the recent selloff, which has reduced its value by a third since February 17. The stock was one of the most popular purchases by investors in mainland China using the Stock Connect trading link to buy listed stocks. In Hong Kong. The outgoing flows through that link have recently recovered.

Armies of individual investors who have become more active users of mobile trading applications have also increased market volumes.

As a result, “When things start to get better, they do it very quickly. But when they start to go down, it all falls apart quickly too, ”said Wei Wei Chua, portfolio manager at Mirae Asset Global Investments in Hong Kong. He said his firm has rotated into cyclical financial names, like insurers, and defensive plays, like utilities.

Ken Peng, head of Asia-Pacific investment strategy at Citi Private Bank, said that as the world gradually recovers from the coronavirus pandemic, technology stocks could lose favor with investors. “There is going to be less demand for technology,” he said, “and more demand to get out of the house.”

Many individual investors suffered losses in the quick liquidation. Huang Xiaohu, a 35-year-old tech entrepreneur in Shenzhen, previously benefited from Kuaishou Technology’s strong business debut.,

an operator of a popular short video app in China. After selling the shares he received in the company’s initial public offering, he decided to buy them back after a recent drop, but the shares kept falling and he’s sitting on paper losses equal to more than $ 10,000.

“I don’t want to talk about stocks anymore. My heart is broken, ”said Mr. Huang, who also owns the Hong Kong-listed Alibaba shares, with a loss on paper of about 20%. He said he plans to keep both stocks in hopes of a recovery.

Write to Xie Yu at [email protected] and Joanne Chiu at [email protected]

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