China’s Stock Snapback Comes as Big Tech Regulatory Fears Recede, for Now

In the stock market — pick your market, any market — a few days of heady gains do not necessarily a trend make. After all, nothing travels in a straight line.

But the last two sessions in China, as viewed through the Hang Seng Index (and some of its subsets), give a nod to the outsized impact that government efforts can have, to the upside or the downside, with words and with deeds.

At this writing, the Hang Seng has surged 7% on the day, after Wednesday’s (March 16) 9% gain. Drill a bit deeper and on Thursday, the Hang Seng Tech Index slightly outpaced the broader index, ending about 7.8% higher. Within the tech index, companies like Alibaba gained double-digit percentage points, which in turn had shown a massive 22% gain on Wednesday (and Alibaba was up 37%).

The rally marked an abrupt reversal from earlier in the week, when the indices had notched their worst closing since 2016. The rebound was buoyed by comments from Chinese officials, relayed by state-run media, that among other things, regulations would be “transparent and predictable.”

The key language here, we’d contend, is the concept of predictable regulation, which is a positive read across for large platform operators in the country — spanning Tencent to Alibaba to Meithuan to Ant to a host of others.

Keeping the US Listings in Place

Regulators also noted, through the state media, that China is working to cooperate with the U.S. on oversight of Chinese firms listed here on U.S. exchanges. The cooperation hints that Chinese firms’ delisting from U.S. bourses is not a foregone conclusion.

Read more: China’s Equities Rout’s Roots Go Beyond COVID, Macro Concerns

To put it another way, keeping the listing lines open, so to speak, means that Chinese tech juggernauts have another avenue of capital at the ready (should there be follow on listings) and also can use their stock as currency in future deal making. Wall Street also lends an avenue of prestige to firms that trade here.

But it is the prospect of a more muted regulatory environment that is likely giving these companies a bit of rocket fuel. Where there are crackdowns, fines and investigations, the uncertainty of how revenues will fare (and by extension, earnings), leads investors to flee stocks.

The examples are numerous, but to offer up just a recent one: Meituan, the Chinese food delivery company, lost $26 billion in value in a single day earlier this month as regulators sought to lower fees food platforms are charging restaurants.