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An investor looks at computer screens showing stock information at a brokerage in Shanghai. Photo: Reuters

Hong Kong stocks clobbered with tech index in record plunge on China regulatory fears, US investment concerns

  • Tencent and Meituan led losses among tech stocks in Hong Kong as traders opted to avoid the unknown in China’s ongoing regulatory clampdown
  • Offshore investors dumped mainland stocks by the most in a year on Monday amid market meltdown
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Hong Kong stocks sank to an eight-month low, with the market’s technology barometer suffering a record crash on its first anniversary, as investors dumped their holdings to avoid growing risks in China’s regulatory rampage. Concerns about US investment ban accelerated losses.

The Hang Seng Index fell 4.2 per cent to 25,086.43 at the close of trading, the most in 14 months. The slide has now snowballed to just shy of 10 per cent over three days, dragging the benchmark to the lowest since November. The Hang Seng Tech Index tanked 8 per cent, the most since it was introduced a year ago.

Stocks in mainland China markets also slumped after offshore funds exited the market at the fastest clip in a year while state-run media attempted to talk up the market. The onshore yuan and Hong Kong dollar fell to 6.5040 and HK$7.7810, their weakest against the US dollar in more than three months, according to Wind and Reuters data.

Tencent Holdings tumbled 8.9 per cent to HK$446.00, the biggest drop in nearly a decade, leading losses among tech index peers. Meituan plunged 17.7 per cent. Alibaba Group Holding, the owner of this newspaper, fell 6.4 per cent after earlier slipping below its November 2019 IPO price of HK$176. All but two of the 30 tech constituents declined.

Today’s losses added to more than US$570 billion of value destruction on Monday in indices of Chinese stocks from onshore markets to Hong Kong and New York. China launched a new nationwide campaign to purge what it deems problems in the internet industry, which has been battered for months in an almost continuous crackdown from different government bodies.

“The market is still looking for a bottom, the main factor continues to be the fear of regulations,” said Gary Ching, Hong Kong-based chief analyst for macroeconomic and strategy at Guosen Securities. “Funds may not buy further into tech giants. The thought that the future belongs to them is changing.”

The policy tightening by China’s central bankers and regulatory agencies are worrying investors at a time when expansion in the world’s second-largest economy is slowing, even if the regulatory crackdown is seen as an effort to improve the quality of growth.

“We could see times when markets become concerned that China’s policy setting might be excessively tight,” BlackRock strategists said in a note to clients on July 26. “That points to downside risks in the short term.”

Old economy stocks trimmed gains even as traders looked for a safe haven from the tech wreckage. HSBC rose 1.8 per cent, paring an earlier advance of 4.5 per cent. Developer CK Asset Holdings added 1.2 per cent, losing some of its 4.6 per cent rally in early trading.

China Evergrande Group plunged 13.4 per cent after the indebted developer cancelled a special dividend proposal. Its subsidiary China Evergrande New Energy Vehicle Group lost 16 per cent.

In the mainland markets, the Shanghai Composite Index shed 2.5 per cent to 3,381.18, defying an attempt by state-owned media to shore up sentiment. The tech-heavy ChiNext fell 4.1 per cent, reversing a 1.5 per cent gain in early trading. Offshore funds dumped 12.8 billion yuan (US$2 billion) of mainland shares on Monday, the most in a year based on Stock Connect data compiled by Bloomberg.

Monday’s selling has knocked back net inflows this month to just under 406 million yuan. That is still a tiny dent to the cumulative buying spree this year of 224 billion yuan, and 300 billion yuan over the past 12 months, according to stock exchange data.

The Chinese government’s restrictions on foreign capital investment in education firms are scaring foreign investors away, said Alvin Cheung, associate director at Prudential Brokerage in Hong Kong. Speculation about widening ban by Washington on investment in Chinese stocks is also weakening sentiment, he noted.
China’s state media went on a mission to talk up the battered stock market and reassure rattled investors after a rout on Monday that erased more than US$570 billion from Chinese stocks listed at home and abroad.

The panic sell-off provides an opportunity to “buy on dips” – meaning to invest in stocks that have plummeted in price – as there are no fundamental changes in the onshore market, according to an article published by the Securities Times, which is run by Communist Party mouthpiece the People’s Daily.

The Shanghai Securities News, which is owned by the official Xinhua News Agency, ran an article saying there is no systemic risk and that stock valuations are expected to rebound. The Securities Daily cited analysts as saying the turbulence was simply a result of funds rotating in and out of sectors, and reassured readers that the big picture of the economy and liquidity remained intact.

 

This article appeared in the South China Morning Post print edition as: stocks hit again as investors flee risk
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