On Monday, Hong Kong shares of Alibaba Group Holding (SEHK:9988) plunged as much as 5.3% to HK$108.80, the biggest intraday percentage decline since Jan 27.

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Alibaba (NYSE:BABA), however, is not the only major tech company in China that was under pressure amid regulatory scrutiny from Beijing on the metaverse.  

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Shares of Tencent Holdings (SEHK:700) tumbled 5.2% in extended declines from Friday, while the U.S.-listed shares of both companies were not trading on Monday due to the Presidents Day holiday.

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The China Banking and Insurance Regulatory Commission recently cautioned a rise in illegal investment schemes linked to the metaverse, highlighting false metaverse projects, cryptocurrency-related frauds, and over-hyping of metaverse real estate.

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Several of China's tech behemoths are now bigger than the largest state-owned enterprises. And, since capitalizing on opportunities in the metaverse has become increasingly important, it may seem politically threatening to the Communist Party.

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Before the "common prosperity" push brought it to an abrupt halt, the technology sector's bullish run had lasted for decades.

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CHINESE TECH

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Chinese technology stocks dropped for a third straight session, with the Hang Seng Tech Index falling more than 3% on Tuesday and headed for the lowest close since its inception in 2020.

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The retreat weighed on the broader Hong Kong market, with the Hang Seng Index slipping as much as 3.5% as it struggles to shake off the impact of China's sweeping crackdown on private enterprise.

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WHY THIS MATTERS

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No company names were mentioned in last week's statement from the China Banking and Insurance Regulatory Commission.

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Thus, metaverse ambitions from Alibaba and Tencent are under no visible or immediate threat. Instead, just because the metaverse exists in the virtual world does not mean it will have any less regulatory oversight than real-world China.

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In addition, the recent announcements "might make investors a bit more reluctant to invest in Chinese internet names," said Herald van der Linde, head of Asia Pacific equity strategy at HSBC Holdings Plc.

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To invest in Alibaba's stock, visit MEXEM.

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