(Bloomberg) — Meituan tumbled the most in nearly seven months after China issued new guidelines asking for food delivery platforms to cut fees, showing that investor angst over the nation’s tech giants remains high.
Shares of the food delivery giant sank 15%, wiping out $26 billion in its market value, after the government asked platforms to cut charges for restaurants to reduce business costs. The move caused a broad selloff in tech shares, with the Hang Seng Tech Index closing 3.2% lower while the benchmark Hang Seng Index dropped 1.9%.
Online food delivery platforms were also told to give preferential fees to restaurants in regions hit by the pandemic, according to a statement by the National Development and Reform Commission on Friday.
Investors remain wary about China’s once-mighty tech sector after Beijing’s yearlong regulatory crackdown wiped off some $1.5 trillion in market value in the Hang Seng Tech Index. Driven by its “common prosperity” campaign, Beijing has vowed to tighten oversight on everything from anti-monopolistic practices as well as cybersecurity.
The new policy will likely spook investors, who have started to dip their toes back into the tech sector due to attractive valuations, with the Hang Seng Tech Index trading at its cheapest-ever valuation since its inception in July 2020. Even though many investors agree that the worst of the clampdown may be behind, any sudden initiatives could mean volatility for tech stocks ahead.
“The knee-jerk reaction shows market fears over China’s regulatory tightening haven’t been completely eradicated,” says Daniel So, a strategist at CMB International Securities. “Overall, the market is expecting more granular regulatory measures to be rolled out this year even though the worst of crackdowns should be over.”
Just how far-reaching China’s continued clampdown on the profitability of some of the biggest tech firms will be on full display in coming weeks they release earnings.
The delivery business and fees from restaurants are a main part of Meituan’s revenues, according to Stanley Chan, an analyst at Emperor Securities. That means the rules add uncertainty to the company’s financials.
Friday’s selloff extended losses in the Hang Seng Tech Index to nearly 50% from its February 2021 high. Meituan shares have lost nearly 60% in the past 12 months. The spread on its dollar bond due 2030 widened 14 basis points to 317 basis points, poised for the highest-ever level, according to Bloomberg-compiled data.
(Updates throughout)
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