Trading screens resembled China’s flag this week — a few stars, but mostly red — after another regulatory crackdown on Big Tech companies.
Ructions from the sell-off, sparked by the fact that Chinese authorities tightened the noose around education technology and music streaming businesses, were felt around the globe — and nowhere more acutely than on the JSE, which is dominated by the technology giants Naspers and Prosus.
Since Naspers owns 73% of Prosus, which in turns holds 29% of Tencent — the poster child for the internet economy in China — the entire SA market was dragged down. From a high of HK$757 in February, Tencent had slid to HK$446 by Tuesday, a drop of more than 40%.
This meant that in the first two days of this week, Naspers plunged 14%, erasing R180bn from its market value, while Prosus tumbled 14.3%, wiping R322bn off its value.
Both have now fallen to 15-month lows. And, since they are considered must-haves by the asset managers who invest people’s pensions, South Africans will have been hit in their pockets.
The Chinese government has sought to impose new restrictions on companies profiting from private education. Tencent has invested billions in online education platforms in recent years, as part of a push to become less dependent on its mobile gaming business. In particular, its Yuanfudao tutoring business raised $2bn last year.
"This is not the first time that governments have gone after big technology companies," says Wayne McCurrie from FNB Wealth & Investments.
The authorities generally don’t like the power that Big Tech companies wield in everyday life and see the sheer size and customer base of these businesses as a threat, he adds.
"This is a continuation of a worldwide government crackdown on Big Tech. The Chinese might be the most energetic, but they are not the only ones," says McCurrie.
While McCurrie points out that Tencent’s foray into online education is relatively recent, it is the impact on sentiment that is most damaging.
Naspers and Prosus CEO Bob van Dijk was not too perturbed by the prospect of tougher regulation two weeks ago, when he told the FM it was "natural and fine" for authorities to take a more active role in regulating technology platforms.
Tencent, he told the FM, has been factoring this into its thinking for years.
Still, Tencent may have believed itself to be more insulated from government intervention since it was largely seen as being "well-behaved", says McCurrie.
This is in contrast to Alibaba, whose CEO, Jack Ma, was quite critical of Chinese policy last year. In November, Chinese regulators pulled the plug on the listing of Ma’s financial services business, the Ant Group, and then fined Alibaba $2.7bn in April for anticompetitive practices.
Gryphon Asset Management portfolio manager Casparus Treurnicht is more dubious than Van Dijk about how this will all play out.
"We have been wary of tech for some time already and we are not positive at all. In all honesty, this might just be the start," Treurnicht says.
What will give optimists pause is that Tencent seems to be getting hammered on more than one front.
For example, it is being forced to allow more competitors in music streaming and was recently slapped with a fine by the regulator.
Curiously, the company halted new registrations on its super-app WeChat until early next month as it upgrades to "align with relevant laws and regulations", Reuters reported this week.
Treurnicht says the stock prices of Big Tech firms are vulnerable to sudden movements. "A stock can easily halve just from regulatory or regional changes in its operating environment. And once it has halved, it can halve again when the numbers start to show."
This is evident not only in Tencent’s stock slide; Alibaba has also dropped below HK$180 a share from highs of more than HK$300 in October.
Chinese authorities also cracked down on ride-hailing service DiDi earlier this month, citing national security concerns due to the large amount of data it collects about users.
McCurrie believes, however, that markets are overreacting. While tech companies will continue to face tougher regulation as they grow into giants, the new rules won’t necessarily always affect the bottom line, he says.
The US has taken a tough stance on Facebook and has been less than welcoming towards China’s ByteDance, which owns video-sharing app TikTok. Australia earlier this year dug in its heels against Big Tech companies, demanding payment to the original publishers when material from traditional media is shared.
Van Dijk, however, takes a long-term perspective. "If you have a one-year view, you might get very nervous about it, but if you take a 10-year, 20-year view, you can say: ‘OK, well, the world goes up and down.’"
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