Asian Tech Rout Worsens as China Index Closes Near Record Low

On Tuesday, investor worries of rising interest rates fueled a global selloff in technology equities, with a Hong Kong benchmark tracking Chinese technology companies ending near a record low. The Hang Seng Technology Index, which began trading in July of last year, lost 0.3 percent after recovering from initial losses of up to 2.5 percent. The index, which includes Tencent Holdings Ltd. and Alibaba Group Holding Ltd., is set to fall for the fourth week in a row.

Increased regulatory monitoring and a rapid jump in rates sparked investor worries of a bubble, and megacap technology firms that soared through the epidemic have fallen. Chinese firms have been struck particularly hard, as they are already caught up in Beijing's regulatory crusade.

The so-called Faamg group lost $238 billion in market value overnight, and Amazon.com Inc. has lost money for the year. Hong Kong's IT index is already down roughly 46% from its February high, with members losing $1.4 trillion in market value.

Bloomberg Intelligence analyst Matthew Kanterman said, "It's a perfect storm of challenges right now." “In the short term, a convergence of issues such as ongoing regulatory hurdles, increasing interest rates, and China property contagion worries will almost certainly continue to weigh on China's IT sector.”

Bilibili Inc., an online entertainment platform, fell 2.6 percent in Hong Kong, making it one among the worst performers on the index, while Alibaba Group fell 1.2 percent. Both equities are currently trading at all-time lows. Tencent, a market leader, was down 1.5 percent.

Other areas of Asia were affected by the selloff. Z Holdings Corp., the SoftBank Group Corp.-backed search engine operator, finished 5.6 percent lower, the highest in five months, while Naver Corp., dubbed "South Korea's Google," finished 3 percent lower.

In a radio interview with Bloomberg, Christina Woon, an investment manager at abrdn, said that investors are concerned about the impact of Chinese inflation and restrictions on the industry. “People are taking a bit more of a risk-off mentality here, and that's probably going to continue” until officials relieve some of the constraints, she added.

China's IT industry has been shaken as the government tightens regulations on private companies in order to achieve President Xi Jinping's vision of "shared prosperity." The fall has been exacerbated by fears of worldwide contagion from the probable collapse of leveraged property giant China Evergrande Group.

Worries over the financial center's benchmark Hang Seng Index pushed it into a bear market in August, dethroning Hong Kong as Asia's No. 2 market after Japan. The Hang Seng China Enterprises Index is the worst-performing major stock index in the world this year.

While China tech stock values have fallen, “it's hard to envision trends reversing in the short term without a catalyst or resolution to the numerous headwinds,” Kanterman said.