The gap between returns from U.S. and China tech shares is the widest in a year post-Didi crackdown

July 13, 2021, 4:19 AM UTC

The gap between megacap technology stocks in China and the U.S. is at its widest in at least a year, as Beijing tightens its grip on some of the nation’s biggest companies.

An equal-weighted basket of China’s three internet giants collectively dubbed BAT—Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd.—fell about 2% in the 12-months through Friday, according to calculations by Bloomberg. In contrast, an equivalent portfolio of their U.S. peers—Facebook Inc., Inc., Apple Inc., Microsoft Corp. and Google’s parent Alphabet Inc. (FAAMG)—surged 40%, resulting in a 42-percentage-point gap between the two groups.

Chinese technology shares just suffered from their worst week in more than four months, after the nation’s cyberspace regulator ordered app stores to remove Didi Chuxing and issued a sweeping warning to the nation’s biggest companies, vowing to tighten oversight of data security and overseas listings. Beijing has also proposed rules that would require nearly all companies seeking to list in foreign countries to undergo a cybersecurity review.

The cohort saw strong gains on Tuesday after Tencent’s acquisition of Sogou got approved by China’s anti-monopoly regulator. Tencent rallied as much as 5.1% in Hong Kong, Meituan climbed as much as 5.7% and Alibaba advanced 4.8%.

Looking at major gauges, the Nasdaq-100 Index is trading around the highest level versus the Hang Seng Tech Index, whose members include China’s biggest tech firms, since the latter’s official launch in July last year.

This underperformance has left the Asian stocks looking relatively cheaper. Baidu, Alibaba and Tencent are trading at an average of 21 times their estimated earnings, according to Bloomberg data. That compares with about 31 times for their U.S. peers.

Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.