Gun-Shy Traders Offload China Tech Stocks Again as Rebound Fades

(Bloomberg) — Technology stocks led Chinese shares lower on Thursday after Beijing took aim at gaming companies for focusing solely on profit, underscoring the risk of calling a bottom to the market.

The Hang Seng Tech Index tumbled 4.5%, the most in six weeks, with Tencent Holdings Ltd. dropping by almost twice that amount in its worst day in more than a month. NetEase Inc. slumped 11% in a decline that accelerated after a report that China would halt approvals for new online games.

Thursday’s pullback was triggered by regulators summoning officials from companies including Tencent and NetEase to remind them of their social obligations and the harm caused by putting profits first. The news was a sharp blow to a tentative rebound that had investors eyeing the return of bull market for Hong Kong-listed tech stocks.

“This demonstrates the risk for those attempting to call the bottom with so much uncertainty still hanging,” said Bloomberg Intelligence analyst Matthew Kanterman. “I don’t think the overnight news is a big departure from that which we already knew, but the reaction clearly signifies the skittishness of investors around any regulatory news.”

Investors remain torn between enticing valuations and China’s long-term economic prospects on the one hand, and on the other the difficulty of predicting how much further the government will go in its crackdown on private enterprise.

The risks and rewards of investing in the nation’s stocks is dividing some of the biggest names in global investing. Billionaire George Soros recently penned an op-ed in a Wall Street Journal with warnings of a “tragic mistake” while huge money managers like BlackRock Inc. are pushing to scale up their mutual fund businesses in China. 

After edging toward a bull market, the Hang Seng Tech Index is now has 11% up from its Aug. 20 low, and around 40% below its February peak. 

“We can see the negative news on the gaming sector also dragging down other tech names, with investors starting to consider the regulatory risks again rather than bottom fishing,” said Bu Jiajie, an analyst at China Galaxy International Securities. “Some tech stocks have had a good rebound in recent days and there is profit taking at the moment.”

Onshore, China’s CSI 300 Index closed little changed while the Shanghai Composite gained 0.5%.

(Updates throughout)

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