China’s intensifying regulatory crackdown crushed tech stocks for a second day on Tuesday.
The Hang Seng
dropped 4.2% after falling 4.1% on Monday, in what’s been the steepest fall for the index since the coronavirus pandemic hit global markets in March 2020. The selling in Hong Kong accelerated toward the end of trading.
China’s multi-pronged attack on its high-flying companies extended to Meituan
which fell 18% after new rules were issued requiring online food platforms to ensure their drivers are paid at least the minimum wage.
“While the second biggest economy in the world started its massive regulatory changes on the tech sector, it has recently spread its reforms to other stocks like real estate and education, which has investors wondering: who is going to be targeted next? This crackdown on private businesses from China is significantly denting market sentiment despite a better-than-expected earnings season so far,” said Pierre Veyret, technical analyst at ActivTrades.
Analysts at BCA Research say the crackdown is part of China’s five-year plan to move toward being a great socialist nation, by alleviating financial burdens on the middle class. “The long-term nature of these objectives implies that regulatory risks remain elevated and raises the odds that the crackdown will continue,” they said.
The late dive for the Hang Seng pressured U.S. stock market futures
which turned negative. Futures on the Nikkei 225
also turned lower after a positive close for the Japanese market
“A sense of caution is likely to linger across markets as investors adopt a guarded approach due to the Asian volatility and Federal Reserve policy meeting on Wednesday,” said Lukman Otunuga, senior research analyst at FXTM.