No longer China’s most valuable company, Alibaba Group Holding Ltd. BABA -0.25% has erased almost all its stock-market gains this year, just days after Chinese regulators signaled a major change in their posture toward the e-commerce behemoth and its finance affiliate, Ant Group Co.
Alibaba’s Hong Kong-listed shares tumbled a further 8% on Monday, after China’s central bank released a harshly worded statement Sunday criticizing Ant’s business practices and instructing the financial-technology giant to shift its focus back to its mainstay—and less lucrative—digital-payments business.
The declines extended a stock selloff on Christmas Eve, taking Alibaba’s market capitalization down to $586 billion. Just two months earlier, it had hit a record of nearly $859 billion on expectations that Alibaba would profit handsomely from Ant’s public listing.
Alibaba’s swift comedown has led investors to reassess the regulatory risks faced by Chinese internet companies. Last Thursday, the country’s top commerce regulator said it is investigating whether Alibaba abused its dominant market position in online retailing through activities such as making merchants sell products exclusively on its platforms.
The hard part is figuring out “how much of the recent regulatory moves against Ant and Alibaba is politically based, how far it will go, and when it will be over,” said Alex Au, managing director at Alphalex Capital Management, a Hong Kong-based hedge fund. He said he is considering buying Alibaba shares if they fall further.
At the center of the unfolding regulatory debacle is billionaire Jack Ma, Alibaba’s co-founder and former boss, and the controlling shareholder of Ant. In early November, Beijing scuttled Ant’s blockbuster initial public offerings that had been on track to raise at least $34.4 billion, after Mr. Ma infuriated China’s leadership by criticizing financial regulations and quoting a phrase from Chinese President Xi Jinping in a controversial speech, the Journal previously reported.
Some analysts said the intensifying pressure on Alibaba and Ant is tied to Mr. Ma falling out of favor with Chinese officials, but there could be spillover effects on other large Chinese internet companies.
On Monday, Hong Kong’s Hang Seng Tech index tumbled 4.3%, with social-media and videogaming giant Tencent Holdings Ltd. falling 6.7% and Meituan, the operator of a popular multipurpose app for Chinese consumers, down 6.9%. Both Tencent and Meituan shares are still up substantially for the year.
Alibaba owns a third of Ant, which had been valued at more than $300 billion just before its IPO was suspended. Ant’s valuation will most certainly be revised downward by investors, as its fast-growing businesses such as digital lending and sales of investment products could be forced by regulators to shrink.
Chinese regulators summoned Ant representatives to a meeting over the weekend and instructed the company to refocus its attention on its original payments business and comply with rules and regulations for its other business lines spanning personal lending, wealth management and insurance.
Richard Turrin, a financial-technology industry consultant, said the recent Alibaba selloff may have more to do with overreaction based on fear, rather than a rational revaluation of Ant and Alibaba.
“Whenever China introduces such harsh regulations against big private conglomerates, people think of iron fist policies that might crush the latter. But Ant and Alibaba shouldn’t be that kind of case,” he said.
It isn’t in China’s interest to break up, or destroy such a profitable enterprise that is already helping small business or poverty alleviation, he added.
Chen Shujin, a banking analyst at securities firm Jefferies, said in digital payments, Ant’s Alipay app is operating in what is already a saturated domestic market, so its growth potential could be limited.
On the antitrust probe, Nomura research analysts said in a note Monday that China might want to use Alibaba’s case as a precedent to send a warning shot to other dominant technology companies that have used their market power in anticompetitive ways
“Any action on Alibaba will not only affect the company but also have profound implications for the whole internet industry,” said the Nomura analysts.
The net result could be a hit to the bottom lines of China’s internet giants as they move to comply with regulators’ wishes, said Iris Pang, an economist with ING Bank in Hong Kong. “Ultimately, they will earn less,” she said.
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