Why Alibaba, Tencent, and JD.com Stocks Dipped Today

What happened

Chinese internet stocks were hit hard on Tuesday. At the close of trading in the United States, the shares of Alibaba Group (NYSE: BABA), Tencent Holdings (OTC: TCEHY), and JD.com (NASDAQ: JD) were down 8.3%, 6.1% and 5.6%, respectively.

So what

The Chinese government is taking steps to reign in power over its largest internet companies. China’s State Administration for Market Regulation has released draft rules aimed at preventing internet platforms from engaging in monopolistic behavior. The rules are expected to apply to online retail marketplaces operated by companies like Alibaba and JD.com, as well as digital payment platforms like Tencent’s WeChat.

Chinese internet stocks have sunk on regulatory concerns. Image source: Getty Images.

Now what

China has long sought to support the growth of its local internet leaders, in order to strengthen their ability to compete with their international rivals. However, in the process, companies like Alibaba and Tencent have become dominant in China. The Chinese government now appears to be focusing on promoting domestic competition.

So Alibaba, Tencent, and JD.com could all face greater opposition as they seek to expand into China in the years to come. Investors should now factor these risks into their outlook for China’s internet leaders. Their stock prices, in turn, are adjusted downward by the market.