Trouble may be brewing for the darling Chinese stocks. All domestic internet firms shift gears to one-up one another. While that competition is healthy, it is also bad news for investors and speculators.
China Reverses Its Internet Crackdown
Some may argue China is finally ready to enter the modern digital age. After years of cracking down on internet activity, dissent, and free speech, things have improved. Beijing officials are winding down their current version of China’s Great Firewall. The floodgates haven’t opened yet, although things are heading in an exciting direction.
As a result of this policy change, internet companies go on an aggressive expansion streak. Many have been waiting for years and aim to strike the iron while it’s hot. However, many limitations are still in place, even if things should go back to pre-COVID standards quickly. Unfortunately, that will also lead to ongoing price gouging and companies trying to defeat their competition at all costs.
For instance, the campaign by JD.com to compete with PDD Holdings will cost $1.5 billion. That may seem worthwhile, yet stockholders exited their positions. As a result, the company’s stock took an 8% dive quickly. There is also the desire for Meituan to expand into Hong Kong, creating thousands of new jobs. However, the associated costs may yield poor benefits for investors.
Competition heats up in China’s gaming market, too. NetEase and MiHoYo want to take the fight to Tencent. That seems like a futile battle, although it would be good to see all three names establish themselves. Unfortunately, they all primarily focus on in-game monetization and lootboxes, rather than engaging gameplay. An all-out technology sector war looms ahead, yet little may change by the end of it all.
Stockholders Are Worried And Scared
An aggressive push to expand, grow, and compete should always benefit the company undertaking the effort. Unfortunately, things work differently with Chinese tech shares. Any asset listed in the West will likely see a big impact of competitors’ moves rather than what the company they invested in is doing. A very different trend from the sudden crypto interest in Chinese coins, although that may be short-lived.
In addition, this approach may not pan out for most firms. Its success hinges on China’s consumption outlook and a back-to-normal regulatory framework. Nothing guarantees either of those – let alone both – will come to fruition. It is an excellent time to be more aggressive, but not by throwing out the baby with the bathwater.