Chinese internet stocks took a tumble on Monday apparently in response to investor worries over President Xi Jinping’s move to serve an unprecedented third term and his picks of loyalists for the ruling Politburo.
At one point Monday morning, the Nasdaq Golden Dragon China Industry Index dropped 21%, a loss of $130 billion in market value, before improving in the afternoon. That index fell to its lowest since December 2012, representing mostly internet-focused companies such as Alibaba, Baidu, JD.com, Pinduoduo but also NIO, a Chinese electric vehicle car maker, which fell 17% mid-day.
By contrast, several US-based companies focused on supplying chipmaking gear to global customers including Chinese fabs saw share improvements of more than 1% on Monday. They include Lam Research, Applied Materials and KLA Corp. Toolmaker ASML, based in the Netherlands, improved by more than 2% on Monday.
Applied had recently forecast a $1 billion reduction in net sales in the next two quarters due to the impact of new US trade sanctions on chip tools and advanced chips sold to China. However, ASML said in an earnings call last week that it foresees a limited direct impact on its 2023 shipments due to the sanctions.
Xi has overseen policy decisions that have led to tech regulations inside China involving data protection and the ways in which algorithms can be used by the tech sector. Both Tencent and Alibaba have seen slow growth this year.
However, it is still not clear if Xi or China will respond directly to the US chip and chipmaking tool sanctions. Duncan Wrigley, chief China economist at Pantheon Macroeconomics told CNBC that China’s policy toward its tech companies “has softened” in recent months.
Toolmakers such as ASML and others based in the US have the ability to seek licenses from the US Commerce Department to continue making expensive chipmaking tool sales into China. Some investors may see the US sanctions as less disruptive than originally feared when the sanctions were announced Oct. 7.
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