Tech Crackdown Hits Chinese Stocks, Just Not in China

The wider index includes some shares listed in Shanghai and Shenzhen, but is heavily tilted toward internet companies, most of which are listed in Hong Kong and the U.S.

Five companies—

Tencent Holdings Ltd.

TCEHY -0.34%

, Alibaba Group Holding Ltd., food-delivery giant Meituan, and e-commerce platforms

JD.com Inc.

JD -0.87%

and

Pinduoduo Inc.

PDD -1.17%

—make up nearly 35% of the benchmark and are listed outside mainland China. The biggest company in the A-Share index is liquor maker

Kweichow Moutai Co.

600519 0.39%

, with an index weight of 6.2%.

China’s internet-technology sector is reeling from what began in part as a crackdown on anticompetitive practices, with regulators imposing a record $2.8 billion antitrust fine upon Alibaba in April. The campaign has since become a broader effort to clean up the sector, spanning issues such as data usage and employment practices.

The clampdown could result in both slower revenue growth and lower profit margins, said Thomas Gatley, an analyst at Gavekal, a financial research and money-management firm.

For example, Mr. Gatley said pressure was mounting on Meituan to better protect its contracted delivery drivers, and stricter regulation would likely mean higher costs. In an earnings call last month, Meituan Chief Executive

Wang Xing

said the company would do more to support drivers, including taking part in a government-led program to buy work-related injury insurance. “The importance of delivery riders as our business partners cannot be stressed enough,” Mr. Wang said.

Some say a clearer regulatory framework will be beneficial in the longer term. William Yuen, a Hong Kong-based investment director at Invesco Asia Pacific, said having proper and more transparent guidelines will ultimately benefit the sector, and investors can then focus on deciding which businesses are better. “Everyone will be more or less under the same sets of rules,” he said.

There is some irony in the outperformance of the domestic market, which is more skewed toward old-economy businesses in areas such as the industrial, financial and consumer-staples sectors.

The absence of the tech heavyweights—some of China’s highest-profile, most valuable and fastest-growing businesses—from mainland markets has been a sore point for Chinese policy makers. To date, local investors have had limited options for buying into these firms, although some of the Hong Kong-listed shares can be bought and sold through a trading link with Hong Kong, known as Stock Connect.

Chinese onshore stocks have also been buoyed by other factors, including buying by international investors, who have increased their overall holdings in recent years. Net purchases of mainland shares through Stock Connect this year have already topped last year’s full-year total of $32 billion,

Morgan Stanley

equity strategists including Laura Wang wrote in a June 3 note.

Another recent source of support for the market was a move to dampen commodity-market speculation in China. Some investors welcomed this because it was seen as reducing the case for tighter monetary policy.

With China’s onshore stocks more accessible to global investors than they were a few years ago, some say they are agnostic about listing locations. Nicholas Yeo, who oversees China equities at Aberdeen Standard Investments in Hong Kong, said the quality of a company is what matters the most, regardless of where it is listed.

Write to Elaine Yu at elaine.yu@wsj.com