Hong Kong stocks tumbled into a bear market, with the Hang Seng index sliding more than 20% from it February high on Friday after Beijing approved a new privacy law to prevent data collection by domestic technology companies.
China's most powerful legislative body, the Standing Committee of the National People's Congress, passed the Personal Information Protection Law that will go into effect on Nov.1, according to FT. The move sent tech stocks plunging and leaving investors bewildered over the intensity of Beijing's regulatory crackdown that has slammed countless sectors.
The full text of the law has yet to be released, but it will affect how domestic technology giants collect and process sensitive personal data of users. For years, domestic companies data-mined users with limited regulation, fueling a black market for personal data.
The report gave little detail on the contents of the law but said it would clarify how sensitive personal data could be processed, require internet platforms to establish "robust personal information protection compliance systems" and stressed that companies "must not excessively collect personal information". An earlier draft of the law substantially curtailed Chinese companies' ability to harvest data without users' consent and imposed fees of up to Rmb50m ($7.7m) or 5 per cent of annual revenue for serious violations. -FT
The new law unleashed fresh turmoil in Chinese tech stocks. Alibaba sank to another record low in Hong Kong on Friday, while the Hang Seng Tech Index fell 2.5%. The moves added to a wave of selling in the industry Thursday after China said it was studying proposals to further ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry.
“If you see the numbers of issues surrounding the tech sector - antitrust, how they deal with workers’ rights and with the gaming sector, all these issues require a bit more clarity in terms of where the regulators are going,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, told Bloomberg Television. “What would we consider to be the fair value of these companies?”
On Friday, the Hang Seng Tech index of China's largest internet and e-commerce stocks, fell 2.5% and has now halved its gains since its mid-February peak.
The Nasdaq Golden Dragon index of large US-listed Chinese stocks has also been more than halved since the crackdown began.
As Bloomberg notes, "Tech is an example of what seems like a never-ending squeeze, with new rules or criticism coming up every week. China has passed legislation setting out tougher rules for how companies handle user data, a move pushing forward its campaign to curb big tech’s influence."
This is hardly the end, however: Bloomberg reports that rolling regulatory crackdowns will continue into new areas, such as liquor makers, cosmetics firms, and online pharmacies. Distillers were among decliners in the mainland’s benchmark CSI 300 Index. China’s biggest liquor maker, Kweichow Moutai Co., plunged 4.4%. Online health-care stocks also dropped, with JD Health International Inc. down 10% after the People’s Daily urged for more protections and guarantees for prescription drugs sold through the internet.
State media also turned up the heat on the cosmetic surgery industry, calling for more scrutiny of incomplete regulations and increasing medical disputes. Ping An Healthcare & Technology Co. dropped by as much as 14%, its biggest decline ever.
The plunge in these new sectors comes at a time when investors have become acutely sensitive to which companies may come into the crosshairs of officials. Over the past weeks, there’s been selloffs in everything from private tutoring firms to e-cigarettes, games and infant formula.
The pivot toward sharing prosperity in society translates into “lower earnings and higher risk premium, and quite a lot of uncertainty,” Sean Taylor, chief investment officer APAC at DWS Group, told Bloomberg Television. “We’ve had regulatory changes in the past and generally they’ve been quite good for bigger stocks because they’ve cleared up competition. But this is very different because we don’t know where the bottom is.”
Amid the rising uncertainty, foreigners are getting tired of trying to catch China's falling daggers and unloaded $10 billion yuan on Chinese stocks for the second straight session.
On top of this all, "we see some further slowdown in China's economy," said Mansoor Mohi-uddin, chief economist at the Bank of Singapore." Daniel Lacalle, chief economist at Tressis, has warned China's managed economy is beginning to stagnate.
“With regulation worries and the beginning of a downturn in economic growth, it’s extremely hard to make money right now,” said Hou Anyang, fund manager at Frontsea Asset Management in Shenzhen. “At this rate even the winning stocks in electric vehicles and chips may not stay strong much longer.”
Meanwhile, the SEC has warned investors about buying Chinese stocks amid the regulatory crackdown.
Despite the collapse in Chinese tech names, investors remain undeterred from piling into US tech, where the Nasdaq trades just shy of all time highs on the back of a handful of tech giants.