Veriton Investment

Chinese Tech Stocks Fall to Brink of Bear Market on Tax Concerns

(Bloomberg) -- An abrupt selloff in Chinese technology shares pushed a key index to the brink of a bear market, as concerns grew about authorities slapping a tax on internet firms.

The Hang Seng Tech Index reversed an earlier gain to fall as much as 3.4% on Tuesday, briefly extending its drop to 20% from an October high. The gauge has since pared its loss to 1.5%. Top losers included Kuaishou Technology, Tencent Holdings Ltd. and Alibaba Group Holding Ltd.

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The sudden drop came as investors grew worried that the government may impose higher value-added tax on internet firms after a tax increase on telecommunication companies. The decline also followed recent volatility on Wall Street as doubts resurfaced about the tech sector’s high valuations and reduced expectations of US interest rate cuts.

Also weighing on sentiment is Tencent handing out cash through digital red packets to drive traffic toward its artificial intelligence app Yuanbao, following similar promotional campaigns by peers. That has added to concerns over an already-intense price war among Chinese tech giants.

“HSTECH has been lackluster since December and today’s weak start could be positioning shifts to buy-on-dip elsewhere, and some market worries over tax changes,” said Julia Wang, chief investment officer for North Asia at Nomura International Wealth Management. “The index looks a bit oversold relative to fundamentals. We could actually see a bigger rebound as we head into China tech earnings in mid-Feb and the policy meetings in March.”

--With assistance from Winnie Hsu.