Alibaba Stock Is Tumbling. Chinese Tech Has a New Headache.

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Alibaba

stock and other Chinese tech shares were tumbling on Monday as amid fresh fines from market regulators over disclosure rules.

China’s State Administration for Market Regulation announced Sunday a wave of penalties for improperly reporting past deals, in breach of competition law.

Alibaba

(ticker: BABA) and

Tencent

(0700.H.K.) were among the companies fined as a result.

Shares in e-commerce powerhouse Alibaba tumbled 8.6% in the U.S. premarket, with internet giant

Tencent
’s
stock trading 3% lower in Hong Kong. The selloff was felt across the sector, dragging down other Chinese tech stocks including

JD.com

(JD) and

NetEase

(NTES), which fell 5.3% and 4.7% in early trading, respectively, while

Baidu

(BIDU) has slumped 5.8%. Hong Kong’s tech-heavy

Hang Seng Index ended 2.8% lower.

Renewed regulatory pressures in China pour cold water on what has otherwise been a tremendous outperformance among Chinese tech stocks in 2022 following a brutal 2021. 

Alibaba lost almost half of its value last year, leading losses in a sector that was hammered by regulatory pressures on both sides of the Pacific. At the heart of the rout was a crackdown by Beijing on the country’s booming tech sector and threats from Washington to delist some U.S.-listed Chinese tech stocks. The Hang Seng Tech Index tumbled 32% last year, while the

S&P 500
gained 27%.

But 2021 has brought a turning of the tide. While most, if not all, tech investors are having a painful year—with stocks in a bear market amid high inflation, rising interest rates, and recession fears—Chinese tech stocks have been much more resilient.

One of the best performers among its peers, Alibaba has eked out a gain of about 0.5% year-to-date. By comparison, U.S. tech giants like

Apple

(AAPL) and

Alphabet

(GOOGL) are down close to 20%.

Analysts have been bullish that China’s tech stock outperformance can continue—but a lot of that optimism is riding on the idea that regulatory pressures are a thing of the past. The latest news is a stark reminder that they are not yet firmly in the rearview.

Write to Jack Denton at [email protected]