Investors in China’s tech shares just got another reminder that regulatory scrutiny into the sector is unlikely to go away any time soon, despite a concerted effort by authorities to shore up a flagging economy.
Alibaba Group Holding Ltd’s (阿里巴巴) stock yesterday tumbled as much as 6 percent after a report that company executives had been questioned in relation to the country’s largest known cybersecurity breach. That also dragged the broader Hang Seng Tech Index lower by as much as 3.5 percent.
The event is the latest indicator to investors that risks abound when it comes to Chinese tech stocks even after the year-long clampdown on private enterprise. Fines levied on Alibaba and Tencent Holdings Ltd (騰訊) over the weekend for not properly reporting past transactions had sent shares tumbling earlier this week.
“The probe will give investors pause to assess if the reforms are over or still ongoing,” said Justin Tang (鄧文雄), head of Asian research at United First Partners. “Given the fragile state of the markets, investors will adopt a sell first and ask questions later approach.”
Executives from Alibaba’s cloud division were summoned for talks by authorities in Shanghai in connection with the theft of a vast police database, the Wall Street Journal reported, citing people familiar with the matter.
The hackers claimed to have stolen data on as many as 1 billion residents.
Even though the incident was only related to Alibaba Cloud, its impact will likely spill over into other private cloud providers such as Tencent and Baidu, said Shen Meng (沈萌), a director at Beijing-based investment bank Chanson & Co.
“If Aliyun [Alibaba Cloud] is indeed found to have flaws in its system, it would deal a heavy blow to the reputation of non-state cloud providers and could even trigger a massive user migration to state-backed cloud systems.”
That migration was already under way even before the security breach, as Beijing’s relentless and widespread crackdown of its formerly high-flying tech giants nudged risk-averse institutions toward state-owned providers.
Large-scale businesses like the China Construction Bank (中國建設銀行) and local municipalities in cities such as Nantong were already moving closer to state-backed cloud platforms.
Not everyone is worried.
The reported probe is not a regulatory issue and executives may only be facilitating the police’s investigations, said Steven Leung (梁偉源), executive director at UOB Kay Hian (大華繼顯控股) in Hong Kong.
The slide in US-listed Chinese shares was overdone, he added.
Still, there are reasons to remain skittish on the broader Chinese equities market. Property sector risks and a resurgence of COVID-19 cases onshore are weighing on the economic outlook.
A separate report showed new home prices in 70 cities, excluding state-subsidized housing, slipped 0.1 percent last month, in a 10th month of declines.
The authorities also refrained from injecting funds into the banking system, while keeping borrowing costs unchanged.
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