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US-listed Chinese stocks fell sharply on Monday after recent rally, as authorities hit tech giants with regulatory fines and Covid outbreaks renewed concern over lockdowns, sparking investor jitters about the outlook in the group.
The Nasdaq Golden Dragon China Index dropped as much as 7.1%, the most since June 13. Alibaba Group Holding Ltd. was among top decliners, plunging 9.4% after regulators fined the company for not properly reporting past transactions. Tech peers JD.com Inc. and Baidu Inc. each slid more than 5%, while travel stock Trip.com sank 8.7%.
The Nasdaq Golden Dragon index in June staged its best month since early 2019 with a 16% rally, but that has taken a pause recently amid a two-week losing streak as investors rushed to take profit.
China’s antitrust watchdog handed out a 2.5 million yuan ($373,000) fine to Alibaba’s subsidiaries for skipping reports on five deals, according to a statement, while Tencent Holdings Ltd. was also fined. Still, the regulator said it will fully support the development of the companies involved.
“I would view this as part of the final rectification process the authorities alluded to in recent speeches,” said Adam Montanaro, investment director at Abrdn. “Clearly there has been some fast money taking profits but the fundamentals remain attractive.”
Uncertainty around the government’s crackdown on the tech industry has been a key risk preventing investors from adding exposure to Chinese stocks. On Friday, Full Truck Alliance Co. and three other trucking service platforms were summoned by China’s Ministry of Transport over issues including illegal price-cutting, leading to an intraday drop of 9.3% in the company.
There’s some speculation that the yearlong crackdown on Chinese internet firms might be receding. Bloomberg Intelligence analyst Catherine Lim said fines may be nominal and the government has indicated that it aims to close cases on companies such as Alibaba and Tencent.
Covid flare-ups in Shanghai also weighed on sentiment. The city found its first case of the BA.5 omicron variant sub-strain and daily new cases climbed to the highest since late May. Shanghai is imposing more rounds of mass testing, two weeks after officials declared victory over Covid.