Market Review - July 2021

August 12, 2021

By Jan Faure

Asian markets pummelled as Chinese regulators clamp down on fast growing tech companies.

US and European equity markets made gains in July while Asian markets were sharply lower after Chinese regulators clamped down on online industries, triggering a global selloff of Chinese shares that surpassed $1 trillion. The benchmark CSI 300 Index in Shanghai declined 7.9% in July while Hong Kong’s Hang Seng Index tumbled 9.9%. Japan’s Nikkei 225 Index was also not spared, sinking 5.2% month-on-month.

The selloff in Chinese internet stocks started after social media and gaming giant Tencent was ordered to give up exclusive music streaming rights and pay a token fine of half a million yuan. Soon after, Chinese regulators published reforms banning private online education companies that teach school curriculums from making profits, raising capital or going public. It resulted in a massive sell-off in listed education stocks in both Hong Kong and the US.

The regulatory crackdown of Chinese tech companies began in 2018 when watchdog agencies clamped down on gaming addiction by temporarily suspending gaming licenses. This was a direct assault on Tencent’s main business and resulted in Tencent introducing restrictions on gaming time for minors.

Last year, Jack Ma’s Ant Group, a powerful financial services company born out of e-commerce giant Alibaba, had its IPO on the Shanghai and Hong Kong stock exchanges scrapped after authorities changed regulations related to online lending. It would have been the world’s largest IPO to date. In April this year, Alibaba was fined a record $2.8 billion for antitrust violations.

Food-delivery leader Meituan is facing an anti-monopoly probe while DiDi Global, operator of China’s large stride-hailing service, was in July ordered off Chinese app stores by cyberspace regulators just days after its US IPO.

In response to these regulations, all affected tech companies have pledged to comply with regulations. Clearly the reis no upside nor point in taking on the Chinese authorities.

In China, which has a system of state-run capitalism, there has been the inevitable clash caused by the extraordinary growth in some technology companies. Alibaba and Tencent have enormous power and influence. This has needed to be checked by the Chinese government which blames these and other tech companies for exacerbating inequality, being anti-competitive, increasing financial risk and challenging the government’s authority.

It is important to note that the Chinese approach to regulation of their fast-growing tech sector has largely been await and see approach. The authorities observe how the industry and its companies behave over time with regards to things such as consumer protection, competitive practices and responsible lending. When things get a bit out of hand, they tend to come in with a heavy-handed approach to rectify perceived failings. In other words, much of the tech sector has been underregulated for years, aiding companies like Alibaba and Tencent with unfettered growth. In many cases the Chinese regulators introduce reforms that put Chinese companies under the same rules as their Western counterparts.

In our view, what has transpired has raised the risk profile of Chinese tech companies, but it certainly does not make these companies uninvestable. As they have done before, these companies will adjust their business models to the new regulations and continue to operate the same businesses and perform well. The Chinese market, and Asian markets in general, offer long-term rewards for investors. Asia holds 60% of the world’s population (4.7 billion people), while the forces of urbanisation and technology are improving spending power and per capita incomes annually. In many ways, today’s big tech companies are modern utilities that people and society simply cannot live without.

GLOBALINDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow JonesIndices
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