On Tuesday, the sell-off in Chinese equities got even worse. People were worried about the country’s relationship with Russia and the pressure from regulators.
China Enterprises Index, which tracks Chinese stocks that are traded in Hong Kong, fell 6.6% after a huge drop in the previous trading session. This came after the Hang Seng China Enterprises Index plunged the most since the global financial crisis. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. were the two biggest tech companies that went down the most in the stock market. The Hang Seng Index fell 5.7%, its biggest drop since July 2015.
China’s stocks are becoming more and more risky because of fears that Beijing’s ties with Russia could lead to new U.S. sanctions. People are worried about regulatory changes, like if the company could be removed from the U.S. stock exchanges. There were only a few bright spots in the market. Lockdowns in major Chinese cities are making the future less bright.
Andy Maynard, the head of equities at China Renaissance Securities, said that the sell-off is overblown, but so is everything else, too. “The market is crazy. There are no rules anymore. A financial crisis like this might be even worse than the one in 2008.
There were big changes in the Hang Seng Tech Index on Tuesday, the most since the index was started back in 2020, Bloomberg-based data show. There was a big drop in the China tech index. It dropped 8.1%, making the declines from a February 2021 high to almost 70%.
Investment manager Yu Yingbo: “People can see dark shadows when they don’t believe in things. Some people are even sceptical about the solid economic figures we’re seeing right now,” he said. Just a well-planned, persistent, and synchronised way to sell.
The Tech Rout
The sell-off in Chinese stocks has been especially bad in the tech industry. Investors had already been worried about China’s year-long regulatory crackdown and the looming rise in U.S. interest rates. In recent days, they were worried about the risk of sanctions if China helped Russia in its war.
That caused the Hang Seng Tech Index to fall 11% on Monday, the worst one-day drop since the index was started in July 2020. It’s even been said that some Chinese internet names are “uninvestable” by JPMorgan Chase & Co. analysts.
On Tuesday, China’s foreign minister, Wang Yi, made his most direct statement yet about American sanctions. He said he wants the country to stay out of the way of U.S. sanctions because of Russia’s war. To calm the markets, that didn’t work. China’s CSI 300 Index fell 4.6%, the steepest drop since July 2020.
The relentless rout has also pushed the value of the MSCI China Index compared to its global peers to a record low, which suggests that some buyers may see the current prices as too good to pass up. For the first time since December, an exchange-traded fund that tracks the Hang Seng tech index saw more money come in than go out.
In the beginning of Tuesday, some people were disappointed that China kept its interest rate on one-year policy loans the same. Most of the economists who were asked said they thought there would be a cut because of the bad state of the financial markets and the economy. Instead, the People’s Bank of China (PBOC) added stimulus by pumping in a net 100 billion yuan ($15.7 billion) of funds into the financial system. This shows that the PBOC wants to ease at a slow pace.
Cesar Perez Ruiz, the chief investment officer of Pictet Wealth Management, says that “we are underweight Chinese equities for a number of reasons.” One of them is the country’s zero-Covid policy, which is hurting growth. There will still be problems with regulation and the risk that U.S. growth stocks could be punished as rates keep going up.
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