Alibaba (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report, Tencent Music Entertainment (TME) - Get Tencent Music Entertainment Group Sponsored ADR Class A Report, Didi Global (DIDI) - Get DiDi Global Inc. Report and other shares of Chinese-owned tech companies traded lower on Tuesday amid an ongoing selloff spurred by China's widening crackdown on internet companies whose shares are listed in the U.S. and other markets outside of China.
At last check, Alibaba shares were down 5.82% at $180.59 after falling more than 7% on Monday. Tencent Music Holdings' American depositary receipts were down 6.41% at $9.79 after falling 3% on Monday.
The ADRs of ride-hailing app Didi, which became entangled in Beijing’s crosshairs following its public debut, were down 4.73% at $7.66; the stock has lost almost half its value since going public at $14 share on June 30.
The gyrations continued amid an ongoing crackdown from Beijing to rein in internet and technology companies that it feels have circumvented rules and regulations that have caused a range of issues for the country and its economy, including data security, monopolistic behavior and financial stability.
"We're getting to a stage where people are very worried about the raft of regulations that are coming out. They are very difficult for markets to forecast," Herald van der Linde, the head of Asia equity strategy at HSBC, told Bloomberg.
Additional speculation that the U.S. may retaliate against Beijing's recent moves by restricting investments in China and Hong Kong in part helped fuel the second-day declines. Hong Kong’s Hang Seng Tech Index, a gauge of many Hong Kong-listed Chinese stocks, plunged as much as 10%, while the yuan slid to its weakest since April.
The drastic moves underscore how fragile investor confidence has become after a months-long regulatory onslaught by Beijing that only seems to be getting worse.
Yan Wang, chief emerging markets and China strategist with Montreal-based research firm Alpine Macro, noted in a recent research note that Beijing’s probe of Didi Global reflects broader trends that have been quietly developing related to China’s view of domestic companies going abroad for capital.
Specifically, Wang pointed to the Chinese government's move to close a loophole called the Variable Interest Entity, or VIE, which sidesteps restrictions against foreign investors owning shares of Chinese companies by allowing allowing companies to sell shares in a shell company that has a contractual arrangement with the real company - creating an administrative moat between foreign investors and company ownership.
“Domestically, it signals the end of the “Wild West” era of Chinese tech firms, as the government is catching up with regulations. Externally, it reflects Chinese companies’ systematic retreat from American capital markets amid the escalating geopolitical rivalry between the two countries,” Wang wrote.