Tuesday, August 3, 2021


A chill has fallen over China’s new generation of tech giants, with stock in former market darlings such as Meituan,

Pinduoduo Inc.

PDD 0.29%


Kuaishou Technology

1024 -11.46%

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.

TCEHY 3.38%

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.

Shares in Meituan, China’s leading food-delivery group, hit a closing high in mid-February. They had more than quadrupled in the previous 12 months, as investors grew more bullish about the post-pandemic outlook for online food shopping in the country. As of Monday’s close, though, the stock had retreated 40% from that peak.

As of Monday, U.S.-listed e-commerce company Pinduoduo had fallen 36% from its recent peak. By the same measure, electric-vehicle maker

NIO Inc.

has fallen 43%, while video-app operator Bilibili Inc. has lost more than a third of its value.

On Tuesday in Hong Kong, Kuaishou stock tumbled after first-quarter results disappointed investors, taking its shares to roughly half their peak closing level from earlier this year. Kuaishou, the operator of a short-video streaming platform, went public in February in a hot initial public offering.

Brendan Ahern,

the chief investment officer for KraneShares in New York, said some investors were selling down holdings of high-growth stocks and those that benefited from work-from-home trends.

He said funds were being redeployed into cyclical-value stocks, meaning those that trade on modest valuations compared with measures such as earnings or book value and that are more sensitive to fluctuations in the economy.

“This is kind of a rebalancing taking place globally, and you’ve seen an element of this in the U.S., in Taiwan, and in South Korea,” Mr. Ahern said. He said that in the U.S. newer players such as cloud-computing company

Snowflake Inc.

that haven’t become profitable had also sold off more heavily recently.

In less than six months, China’s tech giant Ant went from planning a blockbuster IPO to restructuring in response to pressure from the central bank. As the U.S. also takes aim at big tech, here’s how China is moving faster. Photo illustration: Sharon Shi

Money managers said the long-term case for emerging Chinese tech stocks remains strong.

Companies such as Meituan and Pinduoduo have weathered earlier periods of market skepticism. When these and some other Chinese tech stocks went public about three years ago, they didn’t do well initially, said Oliver Cox, portfolio manager of the JPMorgan Pacific Technology Fund.

But he said these firms later outperformed. “The short-term volatility is the price you pay for long-term returns,” Mr. Cox said.


Can China’s next generation of technology stars reverse their market losses? Why or why not? Join the conversation below.

William Fong, head of Hong Kong China equities at Baring Asset Management, said his firm sold some China internet holdings late last year, after valuations had risen but that it had retained an overweight position in the broader Hong Kong- and mainland-listed tech sector.

“We think the growth is there,” Mr. Fong said, referring to prospects for longer-term increases in earnings. “But just in the near term, we also see other interesting opportunities in sectors like consumer or industrials.”

China’s Tech Up-and-Comers

Read more on the country’s next-generation tech companies, selected by editors.

Write to Xie Yu at Yu.Xie@wsj.com

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