China Tech Stocks Drop as Alibaba’s Donation Worries Investors

(Bloomberg) — Chinese technology shares snapped a four-day rally, as investors remained wary over new clampdowns coupled with the impact of Alibaba Group Holding Ltd.’s large donation on its balance sheet.

The Hang Seng Tech Index closed down 1.1% in Hong Kong, in part led by Alibaba Group, which fell 3.6%. The decline came on concerns that the e-commerce giant’s $15.5 billion pledge to Beijing’s “common prosperity” vision would hit profits in coming years. 

“The donation doesn’t guarantee that there will not be more regulations to target at Alibaba,” said Castor Pang, head of research at Core Pacific Yamaichi International H.K. Ltd. “It’s more or less affecting the whole tech sector sentiment today.” 

The handout is a “big deal” and the company’s future earnings growth could fall to low double digit, which would “make its shares a completely different asset,” he added. 

Alibaba joins a growing number of peers in promising to give back after accumulating vast wealth during a decade-long mobile internet boom. Pinduoduo Inc. pledged its next $1.5 billion in profit to farmers’ welfare. Tencent Holdings Ltd. said last month it will double the amount of money it’s allocating for social responsibility programs to about $15 billion.

Other technology firms might be forced to make their own contributions too, which will cause investors to worry “because this is the money going out from company,” said Hao Hong, head of research and chief strategist at Bocom International.

Meituan was the worst performer in the tech gauge on Friday, as traders sold the stock after the firm and some other car-hailing service providers were asked by the government to rectify instances of what it considers misconduct by December. Shares had been gaining in the previous four sessions, which was the longest stretch since May 21.

On Thursday, China’s broadcaster regulator also ordered sweeping action to clean up the entertainment industry, vowing to ban film stars with “incorrect” politics, cap salaries and address problems in the fan-based culture. Entertainment shares were mixed, with Mango Excellent Media Co. finishing 3.6% lower while Huayi Brothers Media Corp. climbing 3.1%. 

Despite the retreat on Friday, the Hang Seng Tech Index still advanced 6.4% for the week. The gauge is up more than 14% since its Aug. 20 low following a bout of bargain hunting in recent weeks.

(Updates throughout)

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