Chinese stocks yesterday experienced another deep sell-off as concerns over the country’s ties with Russia and persistent regulatory pressure sent shares on a downward spiral.
The Hang Seng China Enterprises Index sank as much as 7.7 percent, following a plunge in the previous session that was the biggest since the 2008-2009 global financial crisis. Tech giants Alibaba Group Holding Ltd (阿里巴巴) and Tencent Holdings Ltd (騰訊) led the decline, as the benchmark index slumped 6.6 percent to close at a decade low.
China’s equities are looking increasingly risky on concerns that Beijing’s potential overture toward Russia could bring sanctions. That is adding to worries from regulatory developments, including possible delistings from US exchanges. While upbeat economic data were a rare bright spot in the market, growing lockdowns in major Chinese cities are dimming the outlook.
“The sell-off is overdone, but so is everything else,” said Andy Maynard, head of equities at China Renaissance Securities Ltd (華興證券). “The market is crazy — there are no fundamentals anymore. This might be worse than the 2008 financial crisis.”
The Hang Seng Tech Index yesterday saw an intraday swing of nearly 9 percentage points, on course for the wildest ride since July 27 last year, data compiled by Bloomberg showed.
“When faith is gone, people are ready to see a dark shadow in everything; some are even suspicious of the solid economic figures today,” said Yu Yingbo (於英波), an investment director at Shenzhen Qianhai United Fortune Fund Management Co Ltd (深圳前海聯合財富管理基金). “It’s just a planned, persistent and synchronized selling.”
The sell-off in Chinese equities has been especially severe in the tech sector. Battered by Beijing’s year-long regulatory crackdown and a looming US Federal Reserve tightening, sentiment toward Chinese tech has morphed into fear over the past few days, as investors turned their attention to the risk of sanctions should China offer aid to Russia for its war.
That triggered an 11 percent slump in the Hang Seng Tech Index on Monday, its worst daily drop since the gauge’s inception in July 2020.
Adding to the sentiment, JPMorgan Chase & Co analysts downgraded Chinese Internet stocks to sell-equivalent ratings, including JD.com Inc (京東), Alibaba and Tencent, calling them “uninvestable” in the near term.
“Due to rising geopolitical and macro risks, we believe a large number of global investors are in the process of reducing exposure to the China Internet sector, leading to significant fund outflows,” the firm wrote in a report on Monday.
Yesterday, Chinese Minister of Foreign Affairs Wang Yi (王毅) — in his most explicit statement yet on US penalties — said that he wants China to avoid being affected by US sanctions over Russia’s war.
That did little to calm markets, with China’s CSI 300 Index down more than 4 percent yesterday afternoon.
The relentless rout has also pushed the valuation of MSCI China Index versus its global peers to a record low, suggesting that some buyers might see current levels as too attractive to ignore. An exchange-traded fund tracking the Hang Seng tech gauge saw net inflows of HK$1.5 billion (US$191.74 million) this month, set for the most since December.
Early yesterday, some in the market were disappointed as the People’s Bank of China held steady its interest rate on one-year policy loans. A majority of surveyed economists had expected a cut, given the dire state of financial markets and the economy.
Instead, the central bank added stimulus by injecting a net 100 billion yuan (US$15.67 billion) of funds into the financial system, suggesting that it wants to ease at a measured pace.
“We are underweight Chinese equities due to several factors,” said Cesar Perez Ruiz, chief investment officer of Pictet Wealth Management, citing the nation’s “zero COVID” policy that is affecting growth as one of the reasons.
“The tech sector will continue to suffer from regulation challenges, plus the risk of US delisting and penalization of growth stocks, as rates continue to normalize,” he said.
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