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Chinese tech heavyweight Tencent saw its shares decline markedly following reports that the firm could be hit with a massive fine for violating anti-money laundering rules
Chinese tech giant Tencent (HKG: 0700) shares plunged 10% in Hong Kong to close at 331.80 Hong Kong dollars ($42.38) on Monday, March 14th. This came after the Wall Street Journal (WSJ) ran a report that Tencent potentially faces a record fine for violating anti-money laundering rules. According to the WSJ, Tencent-run mobile payments service WeChat Pay facilitated some fund transfers for illegal purposes. Citing inside sources, the WSJ also stated that Tencent failed to comply with ‘Know Your Customer’ requirements.
Since closing at a record high of 766.50 Hong Kong dollars in January last year, Tencent shares are currently down 56%. This has led to a valuation wipeout of $500 billion for the Chinese tech giant in that time.
More than a year ago, the Chinese government began regulatory scrutiny into the nation’s tech sector. Major players in the space, such as Tencent and Alibaba (HKG: 9988) came under sweeping crackdowns alleging that they manhandled customer data. Chinese authorities then began enforcing regulatory reforms, including antitrust and data protection.
Up until now, Tencent had managed to evade the full force of some of these regulatory reforms. These include the antitrust fines that rocked contemporaries such as e-commerce giants Alibaba and Meituan. However, the impending fine that Tencent now faces is reportedly in the region of hundreds of millions of yuan.
Besides Tencent Shares, Other Chinese Tech players Underperform amid Renewed Covid Outbreak
Shares of other Chinese tech players listed in Hong Kong also took a beating on Monday. This was primarily because of a new wave of Covid infections that affected non-essential production. Another reason for the recent stock underperformance is investor uncertainty over the fate of US-listed Chinese companies. Currently, there are fears that the US might delist firms like Alibaba, Nio, and JD.com. Meanwhile, Chinese ride-hailing platform Didi’s (NYSE: DIDI) plans to list in Hong Kong hit a snag.
China Russia Relationship
The broader base of Hong Kong-listed stocks suffered its worst performance since the global financial meltdown because of China’s close relationship with Russia. The Eastern European country has recently come under global condemnation for invading Ukraine in late February. According to recent US intelligence reports, Russia is asking China for military assistance as it continues to wage war on Ukraine. Even though Beijing continues to deny this, investors still fear that Chinese firms too could incur the wrath of the West for aiding Russia. Furthermore, these investors also believe that such Western displeasure could potentially come in the form of sanctions. Mark Mobius of Mobius Capital weighed in on this saying:
“If the US decides to impose sanctions on China in total or on individual Chinese companies doing business with Russia, that would be a concern. The whole story is still up in the air in this case.”
The Hang Seng China Enterprises Index closed down 7.2% on Monday, representing its biggest decline since November 2008. The Hang Sang Tech Index also plunged 11%, its biggest drop since July 2020.