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While the stocks have a bearish sentiment at this time, the projection for the future has been keeping many investors optimistic about the Chinese markets.
The current Chinese political makeup has stirred a massive slump in the stocks of the top tech companies in the country. After Monday’s trading session, the shares of Alibaba Group Holding Ltd (HKG: 9988) dropped 11.42% to HKD61.65, Tencent Holdings Ltd (HKG: 0700) slid by 11.43% to end the day at HKD206.20 while delivery giant, Meituan (HKG: 3690) dropped 14.83% to HKD120.60.
The slump in Chinese tech stocks was fueled by concerns that the tight grip of President Xi Jinping may further be aggravated now that he is set to lead the country for another 5 years. After the 20th Communist Party Congress, it was clear that the Politburo standing committee would be comprised only of loyalists to President Xi, a position investor believes will not be good for the tech sector in the long term.
The rationale for those who pulled their funds out of the top Chinese stocks is that any mistake in economic policy may go unchallenged as everyone will try to be on the good side of President Xi as best as possible. This fear notably complements that of the continuation of the harsh policies that have tightened Beijing’s grip on the tech sector during the President’s reign.
“Now that the new Politburo standing committee is packed with Xi’s own picks and those in rival factions … were all out, it becomes clear that no other political elite dares to challenge his policy mistakes or even deviate however slightly from his preferred policy agenda, which of course over the past few years has focused on favoring the state sector at the expense of the private one,” said Xin Sun, senior lecturer in Chinese and East Asian business, at King’s College London “As a result, it is unlikely for these policies to be reversed or corrected, leading to an extremely gloomy economic outlook.”
The slump in the tech stocks was made evident in the encompassing fall in the Hong Kong Hang Seng Index as well as its tech index versions. The Shanghai Composite and the Shenzhen Component also recorded a slump on Monday to reflect investors’ geopolitical sentiment on the market.
Hopes for Chinese Tech Stocks in the Long Term
While the stocks have a bearish sentiment at this time, the projection for the future has been keeping many investors optimistic about the Chinese markets. Though the stance of President Xi Jinping is known regarding tech stocks and that he’d prefer a responsible use of data, some analysts believe he has started softening his stance and repositioning the country as a hub for innovations.
“Some of the policy toward tech stocks has been softened,” Duncan Wrigley, chief China economist at Pantheon Macroeconomics, told CNBC’s “Street Signs Europe.” “Overall, I think the stance of the leadership and the governments has become on balance more positive over the last year.”
Despite the potential bearish outlook, China still remains the second-largest economy in the world and President Xi Jinping will like to keep it that way.