Alibaba Is Tumbling. Why Chinese Tech Stocks Have a New Regulatory Headache.

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Chinese tech stocks were tumbling on Monday as two of the embattled sector’s leading players faced fresh fines from market regulators over disclosure rules.

China’s State Administration for Market Regulation announced Sunday a wave of penalties for improperly reporting past deals, in breach of competition law.

Alibaba

(ticker: BABA) and

Tencent

(0700.H.K.) were among the companies fined as a result.

Shares in e-commerce powerhouse

Alibaba

tumbled 4% in the U.S. premarket, with internet giant

Tencent
’s
stock trading 3% lower in Hong Kong. The selloff was felt across the sector, dragging down other Chinese tech stocks including

JD.com

(JD) and

NetEase

(NTES), which fell 3% and 2% in the premarket, respectively. Hong Kong’s tech-heavy Hang Seng index ended 2.8% lower.

Renewed regulatory pressures in China pour cold water on what has otherwise been a tremendous outperformance among Chinese tech stocks in 2022 following a brutal 2021. 

Alibaba

lost almost half of its value last year, leading losses in a sector that was hammered by regulatory pressures on both sides of the Pacific. At the heart of the rout was a crackdown by Beijing on the country’s booming tech sector and threats from Washington to delist some U.S.-listed Chinese tech stocks. The Hang Seng Tech Index tumbled 32% last year, while the

S&P 500
gained 27%.

But 2021 has brought a turning of the tide. While most, if not all, tech investors are having a painful year—with stocks in a bear market amid high inflation, rising interest rates, and recession fears—Chinese tech stocks have been much more resilient.

One of the best performers among its peers, Alibaba has eked out a gain of about 0.5% year-to-date. By comparison, U.S. tech giants like

Apple

(AAPL) and

Alphabet

(GOOGL) are down close to 20%.

Analysts have been bullish that China’s tech stock outperformance can continue—but a lot of that optimism is riding on the idea that regulatory pressures are a thing of the past. The latest news is a stark reminder that they are not yet firmly in the rearview.

Write to Jack Denton at jack.denton@dowjones.com