China crackdown rout spreads amid fears of foreign sell-off
Hang Seng Tech Index plunges up to 10%; yuan slides to its weakest since April against dollar
Hong Kong
A ROUT in Chinese shares in the crosshairs of Beijing's regulatory crackdown extended into the bond and currency markets Tuesday as unverified rumours swirled that US funds are offloading China and Hong Kong assets.
The speculation, which included talk that the US may restrict investments in China and Hong Kong, circulated among traders in late afternoon in Asia, spurring a renewed bout of selling.
The Hang Seng Tech Index, a gauge of many Hong Kong-listed Chinese stocks, plunged as much as 10 per cent, while the yuan slid to its weakest since April against the dollar and even Chinese bonds were dumped.
The drastic moves underscore how fragile investor confidence has become after a months-long regulatory onslaught by Beijing that only seems to be getting worse. Traders fear the latest crackdown on the nation's education, food delivery and property sectors could expand to other industries such as healthcare, as China looks to tighten its grip on Big Tech and reduce the wealth gap.
"The spread of declines from the Chinese equities space into the yuan signals that the concerns over regulatory risk in China might have taken a turn for the worst," said Terence Wu, foreign-exchange strategist at OCBC Bank in Singapore.
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Treasuries climbed with the greenback and the yen as investors sought havens. The yield on China's most actively traded 10-year government notes rose seven basis points to 2.94 per cent, the most in a year. The offshore yuan fell as much as 0.6 per cent to 6.52 per dollar and one-month volatility in the currency pair posted the biggest jump since May.
"Although we can't verify if it's true or not, the market fears that foreign capital will flow out from the Chinese stock market and bond market on a large scale, so sentiment is badly hurt," Li Kunkun, a trader from Guoyuan Securities said of the speculation.
The sell-off has spread into the offshore Chinese credit market as well. High-yield notes are down as much as 5 cents on the dollar, while investment-grade bond spreads widened by another 10 to 15 basis points.
Investors in some of China's most vibrant sectors - from technology to education - have found themselves in the firing line this month 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 investors.
"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. "The regulatory concerns will be the key overhang to the market for the second half." He added that it was too soon in his opinion for investors to "bottom fish".
Technology and education shares retreated once again Tuesday while property stocks also on fell.
Tencent Holdings slumped 9 per cent, the most in about a decade, after the company's music arm gave up exclusive streaming rights and was hit with fines. Its WeChat social media platform has stopped taking new users as it undergoes "security technical upgrade" in accordance with relevant laws and regulations.
Meituan fell as much as 18 per cent, its biggest decline ever, as investors digested new rules on online food platforms.
Turnover on Hong Kong's main equity board reached a record high of HK$361 billion (S$63 billion). The Hang Seng Index slid 4.2 per cent, taking its two-day loss to 8.2 per cent, the most since the global financial crisis.
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. BLOOMBERG
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