(Bloomberg) — A rout in Chinese shares in the crosshairs of Beijing’s regulatory crackdown extended into global bond and currency markets Tuesday as speculation swirled the U.S. may restrict investments in China and Hong Kong.
The Hang Seng Tech Index, a gauge of many Hong Kong-listed Chinese stocks, dropped 10%, falling into negative territory exactly one year after it was first launched. China’s CSI 300 Index fell close to 4%, and the yuan slid to its lowest since April against the dollar.
Read More: China’s crackdown rocks investors, with losses in Chinese tech and education stocks now exceeding $1 trillion since February.
Treasuries climbed with the greenback and the yen as investors sought havens, while China’s bonds retreated. Unverified rumors that U.S. funds were offloading Chinese assets exacerbated the move, according to traders. U.S. stock futures pointed lower.
Investors in some of China’s most vibrant sectors — from technology to education — have found themselves in the firing line as Beijing attempts to rein in private enterprises it blames for exacerbating inequality, increasing financial risk and challenging the government’s authority. A seeming acceptance of short-term pain for stockholders in pursuit of China’s longer-term socialist goals is a rude awakening for those more used to government support for financial markets.
“The key concern now is whether regulators will do more and expand the crackdown to other sectors,” said Daniel So, strategist at CMB International Securities Ltd. “The regulatory concerns will be the key overhang to the market for the second half.”
So added that it was too soon in his opinion for investors to “bottom fish.”
Technology and education shares retreated once again while property stocks also fell. Tencent Holdings Ltd. slumped over 10%, after the company’s music arm gave up exclusive streaming rights and was hit with fines. Meituan fell as much as 17%, its biggest decline ever, as investors digested new rules on online food platforms.
Regulatory Crackdown
Stocks had tumbled in “panic selling” on Monday after regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum. Hong Kong’s major retail brokers lowered margin financing for battered Chinese education stocks as investors suffered steep losses.
“There is no anchor for us to justify the stock valuations now given the regulation uncertainties,” said Dai Ming, a Shanghai-based fund manager at Huichen Asset Management. “In the past, the market was expecting normal regulations on certain sectors, but now it looks like the government can even tolerate killing a whole industry or some leading companies when it’s needed.”
Meanwhile, sentiment toward property stocks was hit as China Evergrande Group surprisingly decided against declaring a special dividend after investors were spooked by news that banks and ratings companies are growing wary of the debt-laden developer. Its shares fell as much as 17%.
A Bloomberg Intelligence index of Chinese property developers slid over 5% on Tuesday after slumping almost 5% on Monday as investors feared regulations on the sector will tighten further.
Elsewhere, a gauge tracking the nation’s healthcare stocks dropped close to 8% as concerns grew they may become Beijing’s next target.
(Updates prices)
More stories like this are available on bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2021 Bloomberg L.P.
