A chill has fallen over China’s new generation of tech giants, with stock in former market darlings such as Meituan, Pinduoduo Inc. and Kuaishou Technology dropping by more than one-third from highs reached earlier this year.
The up-and-comers have proved especially vulnerable to a series of shifts in market sentiment, leading their shares to suffer more than more established rivals such as Tencent Holdings Ltd. and Alibaba Group Holding Ltd.
Like technology stocks everywhere, those of newer Chinese companies have suffered as investors have regained their appetite for more modestly valued old-economy businesses. Those stocks are likely to do well as the U.S. and other countries rebound from the pandemic. The Chinese companies are also caught up in an official clampdown on China’s tech sector alongside Alibaba and other big players.
But these are younger businesses that haven’t become solidly profitable. Analysts polled by FactSet expect Meituan, Pinduoduo and Kuaishou to record net losses this year. That means their valuations are disproportionately sensitive to rising interest rates, which reduce the value of faraway profits more than those that will be earned in the near term.
Although everyone is suffering, there is a distinction between China’s profitable and pre-profit tech companies, said Hyde Chen, an equity analyst with the chief investment office of UBS Group AG’s global wealth-management unit.