US-listed Chinese tech stocks slid after five domestic companies were called out by the US Securities and Exchange Commission for not adhering to the Holding Foreign Companies Accountability Act (HFCAA).
The five companies caught in the crossfire are fast-food company Yum China Holdings (YUMC), tech firm ACM Research (ACMR), biotech groups BeiGene (BGNE) and Zai Lab (ZLAB), and pharmaceutical company HUTCHMED. But investors fear a major shift is underway and other Chinese companies could be targeted.
In this context, the Nasdaq Golden Dragon China Index plunged 10 percent this past Thursday, the biggest daily drop since October 2008. CNN detailed that Alibaba fell more than 5 percent Friday in Hong Kong, while its US-listed stock ended down 7.9 percent on Thursday. JD.com descended 11 percent in Hong Kong, following a 16 percent fall on Wall Street. And ride-hailing giant DiDi registered the biggest dive after it suspended the planned Hong Kong Listing. Didi Global Inc. shares tumbled 44 percent on Friday and are now 87 percent below the IPO price last year, CNBC reports.
Global investors aren’t the only ones worried about inflation and tech market volatility. Consumers are also showing anxiety, and holding off on spending. As such, China’s retail sales eased to 1.7 percent year-on-year in December 2021 from 3.9 percent in November. And we foresee that weaker consumer sentiment, the looming property crisis, and the country’s zero-COVID strategy could impact sales further.
Similarly, high-income households are limiting their luxury spending and putting off cost-prohibitive purchases. Xing Weiwei, a partner at Bain & Company, told the South China Morning Post that “We expect Chinese consumers’ personal luxury purchases to recover to pre-COVID levels between the end of 2022 and the first half of 2023.”
Such volatility will impact the young breed of investors (millennials and Gen. Z) the most, considering that their day-to-day finances are not yet stable, and they often lack both deep financial knowledge and teams of heavyweight financial planners and advisors.
But this is not putting them off. Rather, the influence of young investors in the mainland is only getting stronger: Asia Financial points toward the “Report on the Behavior of Chinese Stockholders,” which highlights that the number of A-share “natural” investors has surpassed 175 million, and Millennials and Gen. Z have become the main force in opening accounts.
“Since last year, we have observed that the proportion of ‘post-90s’ and ‘post-2000s’ account openings is now close to 50 percent [of investors],” said Wang Dan, director of Wealth Management Business Operations at China International Finance Corp. “If you count the ‘post-80s’, this number should be 70 percent. So it is a trend that the age structure of customers is getting younger and for us, it is also our main customer group.”
First-time investors are more risk tolerant and vulnerable to speculative trades — they can make dangerous investments (even) under normal circumstances. Inevitably, a period of increased volatility in the stock market could become exceptionally destructive, threatening the financial stability of these investors.
Brands must prepare for shocks and big swings in the market In the near future. Chinese tech-stock prices will ultimately slide further, impacting additional industries like retail and luxury. In particular, luxury should expect a shift in consumer behavior as buyers catch up with new shopping habits. This means that consumers will be demotivated to make unplanned, impulsive purchases, preferring to invest in unique, high-quality items.
Moreover, middle-class rational consumers will become more selective: they will acquire smaller items from traditional luxury sellers, while looking to resale platforms and consignment shops for bigger deluxe buys. In this climate, it’s no surprise that the power of second-hand luxury will only grow and, sure enough, signal a turning point for the brands who have (so far) failed to jump on the bandwagon — as they will be forced to embrace it.