Chinese rulers punished Tech Giants. What might come next.

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Chinese stocks moved on Friday when regulators fined a dozen companies, including

Tencent Holding,

among Beijing’s ongoing antimonopoly outbreak of internet companies. In addition, the chief executive of Ant Group resigned, and reports indicate that

Alibaba Group holds

they could face a significant fine even if softer regulatory measures than those aimed at Antte are linked.

Investors have been keeping a close eye on how regulators deal with Ant, and Alibaba (BABA) and Ant co-founder Jack Ma, whose comments last have upset Beijing officials ahead of AntO ‘s expected scuttling IPO. Ma’s low profile late last year raised concerns about his whereabouts until he reappeared at a public event.

The Wall Street Journal, citing officials familiar with regulators ’thinking, said Friday that Alibaba may oppose softer regulatory treatment while distanced itself from Ma and is closer to the Communist Party.

For the most part, policymakers see the scale of measures as a warning picture but one thing that has not compromised the long-term operational capability of companies. “Alibaba’s move suggests that Beijing will only follow a light-hearted regulatory response around tech platform business practices, sending a cautious message and wiping out some of the bad business practices, but don’t take heavier steps with such the importance of Alibaba and Ant to short-term financial stability and long-term economic growth, ”said Paul Triolo of the Eurasia Group via email.

That sentiment was raised by TS Lombard economist Rory Green, who described the latest level of developments as a positive sign. “Beijing has made its political point and is now focusing on antimonopoly, data and legitimate financial risks. Future regulation of data sharing and monopolistic practices will benefit small, medium-sized enterprises, small technical allowances and the wider economy, ”Green said by email.

But investors were still rattled, by the

KraneShares CSI China Internet

traded funds (KWEB) down 4% at $ 83.96. Sections of

Tencent Holding

(700. Hong Kong) fell 4% to HK $ 650.50 overnight while shares of Alibaba slipped 4.5% on Friday morning to $ 229.82. The sector has been under cloud since the scourge of the IPO Ant and has received a major blow recently as investors focus more on market segments that have lagged during the pandemic. spread, with China internet ETF down 15% last month.

The year could bring more regulatory and fiduciary reforms as China unravels its approach to the digital economy – and there is more clarity about Beijing’s fine-grained taxes against Alibaba and how it could do businesses like restructuring Ant.

“Alibaba’s study is just the beginning. More technical firms are likely to be subject to trust scrutiny. And the fines against trust will be greater than ever, ”said Winston Ma, former managing director and head of the North American office of China Sovereign Wealth Fund, China Investment Corp., and co-author air The hunt for unicorns: How sovereign funds are reshaping investment in the digital economy.

According to The Wall Street Journal, regulators in China are considering imposing a fine on Alibaba that could exceed the $ 975 million fine

Qualcomm

faced in 2015 for anticompetitive practices. Although there are a large number, it is relatively easy to handle due to Alibaba’s financial situation. Potential trends and cuts to some practices are also considered. Fund managers do not expect these developments to detract from the long-term attractiveness of companies such as Tencent and Alibaba, which could shape high growth forecasts for internet behemoths as construction and More detailed investment investments and potentially damaging the benefits of market segments and the range of ways companies can make money on their large usage bases, fund managers do not see these developments going up significantly in the long run.

Opinions around the two companies could also split, with the focus on Alibaba being seen as more specific to the company related to Ma’s ideas and questions about Ant Group’s financial business model, says Brian Bandsma, markets manager emerging at Vontobel Quality Growth, which has reduced tenures in Alibaba but not Tencent. While Tencent may not come out unscathed, Bandsma says it could be so vulnerable that regulators are not focusing on the video conferencing and advertising on which Tencent is more reliant.

In general, asset managers have been looking elsewhere beyond the major internet stocks in China, especially as the wider global economic recovery catches on. While the latest development may have reduced the risk to many Alibaba, rising interest rates and tougher year-over-year growth ratios remain a problem for some of last year’s big internet winners , says Laura Geritz, emerging market manager in charge of Rondure Global Advisors. That said, it is overweight in the internet sector, instead favoring tourism-related companies as resource sources in Thailand and the Philippines and those that are well-positioned for opening up economies. -again during the year.

The takeaway for investors: Continue cautiously around Chinese internet stocks, not only because of ongoing regulatory uncertainty, but also because investors are moving more into companies ready to benefit as the global economy recovers from the pandemic.

Write to Reshma Kapadia at [email protected]