China stocks officially in bear territory, lose market cap bigger than Canada’s entire economy

Shanghai’s benchmark stock index plunged to its lowest level in two years, driving Asia’s largest equity bourse down into official bear market territory, as concerns about a trade war with the United States sent investors scurrying to extract funds from equities.

Overall, Chinese stocks have lost about US$1.6 trillion in total value – more than the size of Canada’s entire economy – since a high in January, threatening to dethrone China as Asia’s largest capital market in the process. The Shanghai Composite Index dropped 0.5 per cent at the close on Tuesday.

It has fallen by 20 per cent from its January peak, officially marking the bourse as a bear market. A loss of another 6 per cent in market cap will cede the title of the region’s biggest stock market to Japan.

“New economy companies such as internet services firms are the most affected by the stoking of trade war tensions, which create bad sentiment for the market as a whole,” said Gordon Tsui, director at Hong Kong-based finance house Hantec Pacific. “The market needs more funding from banks to support these industries. As trade tensions get worse, there will be a major market correction.”

Markets fell across Asia, with 11 key indexes including those in South Korea and Australia declining, compared with seven, including Japan and Thailand, that managed to eke out small gains.

Chinese investors have not witnessed a market rout since 2015, when a crash wiped out US$5 trillion in market value. About a third of the stocks on the Shanghai and Shenzhen exchanges were technically oversold on Tuesday, with their 14-day relative strength indexes breaching the level of 30, according to Bloomberg data.