Alibaba And Tencent Shares Rise: Is China’s Digital Dystopia Over

Shares of tech giants Alibaba Group (9988.HK) and Tencent (0700.HK) made a buoyant start to the week on the Hong Kong stock exchange. This rally could herald a potential shift in investor sentiment.

Investors anticipate the end of China's tech crackdown following the hefty $984 million fine imposed on the Ant Group, an Alibaba affiliate.

Ant Group responded to the penalty pronounced on Friday, announcing a share buyback. This action values the firm at a 75% markdown compared to the initial public offering (IPO) proposition abandoned earlier. The move is seen as a liquidity boost, and further secures investor confidence.

The initiation of Beijing's comprehensive clampdown on various industries began with the shelving of Ant's IPO in late 2020. This action sparked a new, uncertain operational environment, affecting startups and established companies.

Tech giants, including Alibaba and Tencent, and food delivery conglomerate Meituan (3690.HK) saw their share prices dwindle, costing billions.

Move Toward Stability & Transparency

In addition to Ant, Tencent's digital payment platform, Tenpay, received a nearly 3 billion yuan ($414.88 million) fine for violations in customer data management on Friday.

At the lunch break in Hong Kong, Alibaba shares soared by 3.2%, and Tencent shares rose by 1.5%, outperforming the 0.8% rise of the broader index.

However, the People's Bank of China (PBOC) signaled a shift in its focus from individual companies to industry-wide regulation, stating that most financial issues for platform companies had been addressed.

Market analysts have viewed this announcement as a crucial turning point for a stable, transparent, and foreseeable regulatory landscape for China's internet businesses.

The shares' strong rebound is primarily due to the belief that mainland regulatory pressures will ease, according to Dickie Wong, Executive Director at Kingston Securities.

Regulatory Shifts and Market Rebounds

Ant Group, spun off by Alibaba 11 years ago and owning a 33% stake, contemplates participating in the buyback that transfers shares to an employee incentive scheme.

The group plans to repurchase up to 7.6% of its equity interest, valuing it at around $78.5 billion. This valuation represents a drastic reduction from the $315 billion estimation in 2020. Chinese regulators derailed this projection, which was supposed to be for the largest-ever IPO.

The buyback aim is liquidity for existing investors and attracting talent through employee incentives, achievable through an IPO. Hence, the IPO is essentially put on hold.Oshadhi Kumarasiri, a Research analyst

The PBOC cited corporate governance and financial consumer protection as areas where Ant and its subsidiaries violated regulations. They also pointed to issues with the payment and settlement business and anti-money laundering obligations.

Despite this, the conclusion of Ant's penalty may pave the way for a financial holding company license, potentially resurrecting its IPO plans.

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