China Tech Selloff Accelerates as Weak Profit Scares Investors

(Bloomberg) — Chinese tech stocks fell sharply and erupted into a three-day rally as a number of companies’ profits fell short of investor targets.

The Hang Seng Tech Index fell 2.7% as of 2:33 PM in Hong Kong. The index was plagued by live steaming giant Kuaishou Technology and electronic components maker AAC Technologies Holdings Inc., both of which fell by at least 13% after missing estimates.

The continued decline comes after the government’s shock ban on profits at guidance companies last month, which led to a sell-off of about $1 trillion in globally listed Chinese stocks. Investors are concerned that even with the massive loss in market value we’ve already seen, fragile sentiment leaves the technology sector vulnerable to further losses.

“Following the technical recovery of recent days, the market is lacking momentum amid profit-taking as investors continue to look for new regulations,” said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong.

READ: Kuaishou collapses 13% as margin erosion risk weighs: Street Wrap

Kuaishou reported a larger-than-expected loss as it increased spending to retain users. Monthly and daily active users also decreased compared to the previous quarter. Shares, which were listed in Hong Kong earlier this year, have lost more than 80% of their value since peaking in February.

Meanwhile, China’s CSI 300 index fell as much as 1.9%, its first drop in four days, as investors sold shares of beverage companies including Kweichow Moutai Co., which fell a whopping 4.2%. The baijiu giant is highlighting product price stability ahead of the holiday season in the coming months, according to a media report.

The drink sector’s decline is more of a “temporary setback” after recent gains, said Capital Securities analyst Gu Xiangjun.

In a sign that recent market volatility has caught the attention of China’s top leaders, a senior official Thursday sought to allay fears that Beijing’s campaign to achieve “common prosperity” means unified equality and could hurt entrepreneurship.

Han Wenxiu, a senior official at the Communist Party’s Central Committee on Financial and Economic Affairs, said at a news conference that the authorities will promote the well-being of all people and “make the pie bigger and divide it well.” Han added that China will create more opportunities for everyone to get rich and avoid falling into the “welfare” trap.

(Update prices)

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