Wall Street Investors Withdraw Funds from Chinese IT Firms... Tencent and Alibaba 'Shake'

US-China Conflict Raises Recession Concerns
Alibaba Down 29% This Year
Since 2020, Chinese IT Firms' Market Cap Drops $300 Billion

Wall Street investors are withdrawing funds invested in Chinese IT companies amid US-China conflicts and economic recession concerns. Chinese IT companies, which had high expectations for stock price increases following the reopening of economic activities, are now shaken by unexpected stock price declines.

On the 12th (local time), major foreign media reported that the stock prices of Alibaba, a Chinese e-commerce company, and Tencent, an IT company, fell by 29% and 19%, respectively, from their peak in January last year to June. It is estimated that the market value of China's top 10 IT companies has dropped by $300 billion from 2020, when the COVID-19 pandemic began, to this year. In contrast, during the same period, the market value of the top 10 US IT companies, including Apple, Microsoft, and Alphabet, increased by $5 trillion.

Tensente [Image source=Asia Economy]

Chinese IT companies, which had attempted to boost their stock prices, are helplessly watching their shares fall. According to a report by The Wall Street Journal (WSJ), Alibaba announced a plan to repurchase its own shares worth a total of $250 billion, approximately 30.5 trillion KRW, by March next year. Major foreign media stated, "Although they tightened their belts and bought shares with cash, it hardly helped the stock price rise," adding, "Company employees' morale has dropped due to cost-cutting and wage reductions."

IT companies that issued 'convertible notes,' a type of convertible bond, expecting stock price support have also suffered significant losses. China's video platform Bilibili raised investment funds by issuing $2.9 billion in convertible notes. Convertible notes refer to an investment method where investors can convert their investment into shares or receive principal repayment at an agreed time after investment. Unlike convertible bonds, the conversion price is not fixed at the contract time. As the time for investors to exercise their conversion rights approached, Bilibili decided to repurchase the convertible notes for $1.7 billion by mid-June.

Investors appear to be withdrawing from Chinese IT company investments due to geopolitical risks such as the intensifying US-China conflict. Recently, the US has shown moves to restrict investments in Chinese companies in advanced technology sectors, leading investors to perceive risks in such investments.

[Image source=Reuters Yonhap News]

Contrary to expectations, the Chinese economy's failure to rebound is also reducing investment incentives. Chinese authorities expect economic growth to slow this year and have set the economic growth target at around 5%, the lowest ever. Increased US pressure on advanced technology sectors such as semiconductors, along with internal instability factors like the real estate market slump and fiscal deficits, are also diminishing the attractiveness of investing in China.

Winnie Wu, a China equity strategist at Bank of America, told major foreign media, "I agree that the future of Chinese IT companies is not bright," adding, "Stocks once owned by foreign investors are declining, and the market value of these companies has significantly dropped."

This content was produced with the assistance of AI translation services.