China stocks in US tumble again on Russia, regulatory woes

[NEW YORK] US-listed Chinese stocks sank again on Tuesday, following a brutal rout in Asia, amid concerns that China's ties with Russia may bring sanctions to Beijing, while persistent regulatory pressures also weighed.

American depositary receipts of e-commerce giant Alibaba Group Holding, rival JD.com and Pinduoduo each fell by at least 4 per cent in premarket trading. Search-engine operator Baidu slumped 5.1 per cent. Through Monday's close, Alibaba had fallen 35 per cent this year to the lowest level since June 2016.

Chinese equities have been slumping since last week amid concerns about regulatory developments leading to possible delistings from the US.

Among other negative headlines this week were a report that Tencent Holdings is facing a record fine for violating Chinese anti-money laundering regulations as well as fresh lockdowns being imposed in some major Chinese cities amid rising Covid cases.

A report that Russia had asked China for military assistance in its war against Ukraine added yet more pressure. While China denied the report, traders worry that potential sanctions against Beijing could hit global growth at a time when recession risks are already rising.

"It's too early to buy Chinese equities because we're not sure these regulatory issues are fully discounted by the market," Joost van Leenders, senior investment strategist at Kempen Capital Management, said in an interview on Monday. The US Securities and Exchange Commission last week named five Chinese firms that could be subject to delisting from US exchanges.

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The Nasdaq Golden Dragon China Index, which tracks American depository receipts of Chinese firms, fell 12 per cent on Monday to close at the lowest level since July 2013.

Although the gauge is now down about 75 per cent from its peak, some fund managers are still leery of buying into the weakness, while JPMorgan analysts on Monday labelled some Chinese Internet stocks "uninvestable."

For others, including Abrdn's Asia-focused investment director Pruksa Iamthongthong, the selloff has made some Chinese stocks attractive. "We see the current indiscriminate selling as an opportunity to selectively add to our overweight to domestic China in themes that should benefit from long-term policy support such as aspiration, digitalisation, going green, health and wealth," she said in emailed comments.

Mark Haefele, chief investment officer at UBS Global Wealth Management, also sees an opportunity in the rout. "In spite of the steep losses and expectations of more volatility in the coming weeks, we remain positive on our outlook on China and maintain our most preferred stance on its equities within our Asia strategy," he said in emailed comments, citing a preference for sectors including mining, construction materials and renewable energy.

Focus for technology investors is also now turning to the Federal Reserve's policy meeting on Wednesday, where the central bank is expected to begin a rate hike cycle - another negative for growth stocks valued on future profits. BLOOMBERG