Markets hate uncertainty. Share prices go into free fall when the market can't quantify the impact of major events such as government interventions. One lesson from the impact of a series of interventions in China - most recently around data privacy as reported in The Financial Times today - is that without a transparent regulatory framework, and a rules-based approach to intervention, the market can't cope with the risk of sudden shocks, under which business models may not be sustainable and capital markets cannot be sure IPOs will go ahead.
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The value of transparent regulation
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China’s biggest tech stocks dropped after the country approved a strict data privacy law, prompting renewed concerns among investors over the intensity of Beijing’s regulatory crackdown.
In Hong Kong on Friday, the Hang Seng Tech index of China’s largest internet and ecommerce stocks including Tencent and Alibaba dropped 2.5 per cent after state news agency Xinhua announced the law had been passed and would take effect on November 1.
The report gave little detail on the contents of the law but said it would clarify how sensitive personal data could be processed, require internet platforms to establish “robust personal information protection compliance systems” and stressed that companies “must not excessively collect personal information”.
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