China tech rally ends on report of new IPO rules; Alibaba Group falls 3.9%

A rally in Chinese technology stocks evaporated in the afternoon after Dow Jones reported that new regulations will be proposed to block companies with large amounts of sensitive consumer data from floating shares in the US.

The Hang Seng Tech Index closed 0.2 per cent lower in Hong Kong after rising as much as 2 per cent in the morning. The new rules target companies seeking foreign listing via units incorporated outside the country, Dow Jones reported, citing people familiar with the matter. 

Tech giant Alibaba Group Holding fell 3.9 per cent, Tencent Holdings Ltd. slid 1.1 per cent and Meituan dropped 0.8 per cent. The tech gauge still posted a 7.3 per cent advance for the week, its best performance since January 22.

“The all-clear signal is still some ways off in the ongoing Chinese regulatory reform,” said Justin Tang, head of Asian research at United First Partners. “At some point, there will be light at the end of the tunnel, it’s just not now.” 

Cyberspace Administration of China said in early July that companies holding data on more than 1 million users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “exploited by foreign governments.”

Its “not surprising given that data security is a key issue that will likely be brought up as US and China potentially restart discussions on auditing oversight of US IPOs,” Marvin Chen, an analyst at Bloomberg Intelligence said.

Prior to the Friday afternoon selloff, investors had been emboldened this week to dip back into the beleaguered tech sector, given an absence of new regulatory or state-media warnings on private industry. Favorable technical indicators, Cathie Wood’s return to the sector and strong results from JD.com had also buoyed sentiment.

Meanwhile, China’s CSI 300 Index closed 0.5 per cent higher, led by industrial and materials stocks. It had earlier gained as much as 1.3 per cent. 

In US premarket trading, Weibo’s American depositary receipts sank 6.9 per cent while Alibaba Group Holding’s declined 2.8 per cent and Iqiyi lost 2.1 per cent.