EDITOR NOTE: China’s tech stocks took a massive blow as new Chinese government regulations wiped away more than $560 billion in market value from the Hong Kong and mainland China exchanges in one week. These regulations were a blow to investor confidence and rushed to sell off what they now see as risky corporate debt. While this exact issue is unique to the government-controlled tech sector in China, a massive sell-off based on a sudden loss of investor confidence is an all too plausible scenario for U.S. investors. A combination of the Fed’s QE policies and investors who believe there is no end in sight are still artificially propping up the U.S. markets. When the free money finally runs out, and the markets respond, this Chinese market mini-crash may seem small by comparison.
Aug 20 (Reuters) - China's tech stocks slumped to new lows on Friday and Hong Kong's benchmark index hit an almost 10-month trough, as an unrelenting series of Chinese regulatory crackdowns crushed investors' confidence.
More than $560 billion in market value has been wiped off Hong Kong and mainland China exchanges in a week as funds capitulate out of once-favoured stocks, unsure which sectors regulators will target next.
The Hang Seng (.HSI) fell 1.8% and its weekly drop of 5.8% was the largest since the height of the pandemic panic in financial markets in March 2020.
Stocks in Shanghai also fell, while investors sold risky corporate debt and the Chinese currency. The yuan was poised for its biggest weekly loss in two months as investors rushed to safety amid global coronavirus concerns.
U.S.-listed shares of China-based tech-related companies gained ground as bargain hunters took advantage of recent sell-offs resulting from Beijing's ongoing regulatory crackdown, which has wiped half a trillion dollars from Chinese markets this week. read more
"There isn't really one trigger, but many bits and pieces that add to the narrative to stay away from China," said Dave Wang, a portfolio manager at Nuvest Capital in Singapore.
"Almost on a daily basis you have negative news coming out, so it forms the impression there's no end in sight."
This week alone China announced tougher rules on competition in the tech sector, summoned executives at property developer Evergrande (3333.HK) to warn them to reduce the firm's massive debt and state media reported looming regulations for liquor makers, a favourite tipple for foreign fund managers.
On the heels of crackdowns spanning from steelmaking to e-commerce and education, the moves are sapping faith in a market that seems yet to find a floor after months of selling. read more
China Telecom was a rare bright spot and surged on its debut in Shanghai. read more
The epicentre of the selloff has been the tech sector, which had been popular with foreign investors who are now afraid they can't quantify the regulatory risk and are selling in droves.
Hong Kong's Hang Seng Tech index (.HSTECH), comprised of many one-time darlings, dropped 2.5% on Friday to a new record low and has shed about 48% since February.
E-commerce titan Alibaba's Hong Kong shares (9988.HK) fell 2.6% to a record closing low and have halved from an October peak. Internet giant Tencent (0700.HK) touched a 14-month low and food deliverer Meituan (3690.HK) hit a one-year low.
"There's a herd mentality at the moment," said Louis Tse managing director of Hong Kong brokerage Wealthy Securities. "People see one person selling and then they do the same."
As a result, Alibaba now commands its lowest price-to-earnings ratio since its listing in New York in 2014 and Tencent its lowest in more than eight years.
"Tencent and Alibaba wouldn't be trading around 20 times earnings if the general mood around them was optimism," said Tariq Dennison, managing director at GFM Asset Management in Hong Kong, who was actually a buyer of both on Friday.
Adding to regulatory worries are concerns that China's economic recovery is losing momentum and debt risks are rising, as data points to slowing demand and factory output and suggests authorities are cracking down at a delicate time.
Policymakers' persistence with curbing red-hot property prices, for example, has markets on edge and corporate credit fell further on Friday with the news that heavily-indebted Evergrande had been rebuked by regulators. read more
The yuan has fallen through its 200-day moving average against a broadly rising U.S. dollar and weakened past the psychological 6.5 per dollar mark, hitting a three-week low of 6.5059 during onshore trade on Friday.
The Hong Kong dollar sits close to its weakest in a year and a half, also suggesting money is moving out of the city.
Original post from Reuters