Fresh Selloff in China Tech Stocks Sparked by Earnings Worries

(Bloomberg) — Chinese tech stocks slumped Friday amid continued concern about the sector’s earnings and the risk of local firms being kicked off American exchanges.

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The Hang Seng Tech Index slid 5% in afternoon trading, the most in over a week. Delivery giant Meituan plunged 8.2% as investors had worried about the company’s growth ahead of its fourth-quarter results. Hong Kong’s benchmark Hang Seng Index lost 2.5% in a second day of declines.

Meituan’s results, which came after the market close, showed revenue slowed for the third straight quarter after weakening Chinese consumer spending and regulatory pressures constrained its online food and travel businesses.

Friday’s slump shows that a rally fueled by easing regulator scrutiny and a more supportive policy stance is starting to lose steam. Traders grew wary after U.S. audit watchdog said Thursday that speculation about a deal that would keep hundreds of Chinese companies from being delisted from U.S. exchanges is “premature.”

READ: U.S. Says Speculation of China Stock Listings Deal Premature

“Some risk averse behavior of selling Meituan shares ahead of earnings is understandable, given most of the tech names in China reported weak results and their shares drop post result, with the exception of Xiaomi,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd.

Sector giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. had reported their slowest growth on record amid a yearlong crackdown by Chinese regulators to rein in so-called reckless expansion of capital. Tencent on Wednesday pledged to embrace the new paradigm of stricter government oversight when it announced results. Its shares sank nearly 6% on Thursday.

A strong rebound in Chinese stocks isn’t on the cards yet as policy makers may be behind the curve in tackling an economic slowdown, according to Ray Sharma-Ong, investment director for multi-asset solutions at abrdn plc.

While the so-called China put exists as Beijing seeks to smooth market volatility, Covid outbreaks and the spillover from the Russia-Ukraine war on Chinese growth and markets “have yet to spur significant policy action,” Singapore-based Sharma-Ong said in an e-mail.

Among companies that have listings in the U.S., Alibaba Group slumped 5.6% on Friday while Baidu Inc. slid 5.3%.

EXPLAINER: How U.S. Is Moving Closer to Delisting Chinese Firms

(Updates price moves, adds Meituan earnings and abrdn comment)