The weight of China’s rising regulatory uncertainty and antitrust fines has ignited extended selloff in shares of top Chinese companies listed globally. This has in turn triggered trillion-dollar losses in the market capitalization rankings of these top East Asian companies.
The most powerful companies out of China, including Alibaba and Tencent, have lost a total of $330 bn in market cap since the end of 2020, a Nikkei Asia ranking revealed. Caught by intensifying round of regulations by Beijing, Tencent share price in Hong Kong exchange has fallen by 14% since the beginning of the year and 8.5% in a one-year period. On a similar note, Alibaba is down over 24% and 39% in the same period.
Chinese companies top Asia’s list
Based on data by QUICK FactSet’s total market value, Nikkei reported that sharp declines were registered in the value of these Chinese giants from the end of 2020 to August 30. According to the report, most Chinese companies continued holding top positions out of Asian companies, but their market cap reduced in the estimated period.
Tencent Holdings topped the list of biggest Asian companies by market cap, however, the valuation of social media and entertainment behemoth fell to $574.3 bn as of August 30, which was -18% lower as compared to the end of 2020.
At the same time, Taiwan Semiconductor Manufacturing Co. (TSMC) scored the position of Asia’s second-biggest gainer, with a market value of $564.4 billion, that was 15% higher from the end of 2020. The chipmaking giant followed Tencent with a small gap after temporarily surpassing the latter in terms of market cap on August 18. The recent declines in Chinese IT companies have been offset by the rising share price of chip companies led by the jump in global demand for semiconductors.
Descending from second to third place on the list of East Asia’s biggest companies, Jack Ma’s Alibaba Holdings registered a fall of -32%, with its market value erasing to $440.6 bn.
However, South Korea’s Samsung Electronics scored the fourth position registering a drop of -15% in market-cap, that stood at $430.8 bn.
Meanwhile, China’s Luxury liquor producer Kweichow Moutai ranked fifth at $308.1 bn, followed by Japan’s Toyota Motors at sixth position, with a $283 bn valuation.
The last four positions were filed by China’s top banks like Industrial and Commercial Bank of China (ICBA), China Merchants Bank, automobile battery maker Contemporary Amperex Technology and food delivery platform called Meituan.
Upcoming regulatory headwinds
China’s fast pace of regulatory action has surprised many investors and thus led to market volatility. “Given investors’ concerns with the recent regulation announcements, a lot of Asian companies and Chinese companies, in particular, are trading on a substantial discount”, says Robert Horrocks, Chief Investment Officer from Matthews Asia.
“But the main thing to look at is the quality of the company – this is not something where on every piece of regulation the government is looking to slap down the private enterprise. In our view, it’s the opposite, it is looking to work in tandem with private enterprise. They know that private enterprises will, in most cases, deliver the best solution, they just want to guide them,” he added.
However, now these top Chinese companies are also getting hit by geopolitical tensions between China and other countries. Moreover, investors are now worried about the upcoming pressure after the Cyberspace Administration of China (CAC) drafted rules that would ban data-heavy Chinese firms from going public in the US.
In the meanwhile, recent reports suggest that the Securities and Exchange Commission in the US will also step up its oversight of Chinese companies seeking IPOs. This has caused another wave of market volatility of the share prices of China’s overseas-listed stocks, which might be de-listed in the near future.
“Foreign investor sentiment may suffer under the weight of rising political tensions between Washington and Beijing, but this is unlikely to disrupt spending by Chinese consumers or their investments in their home equities markets”, Matthews Asia’s Investment Strategist Andy Rothman said. “More regulatory changes are expected, especially in sectors that are data-rich, and these have the potential to create near-term volatility if not communicated clearly. But in my view, these regulatory changes are likely to create a supportive environment for quality companies in the long run.”
China stands strong against its peers?
Despite the recent crackdown by the authoritarian state and its regulators, most of the Chinese companies continue to stay ahead of peers from other nations, with their market cap ranking rising from a decade ago.
As per Nikkei calculations of the rankings of the top 200 companies by market capitalization in East Asia, China’s share was up by 50% this year, which was up from zero during 1990. While South Korea registered a ratio fall of 6%, Japan recorded a steeper fall of 27% from 38% incurred in the last decade.