(Bloomberg) — Chinese stocks tumbled on Monday as mounting concern over a Covid outbreak at home and rising global interest rates added to persistent regulatory headwinds.
The tech sector was once again at the forefront of losses, with the Hang Seng Tech Index closing 5.2% lower in Hong Kong. The broader Hang Seng Index as well as China’s benchmark CSI 300 Index each slumped about 3%.
China’s markets are confronting multiple challenges at home and abroad, causing investors to sell stocks again despite mid-March vows from authorities to support the economy and the battered property and tech sectors. Record virus infections in Shanghai, a higher-than-expected jump in factory gate prices, concerns about tech regulations and surging U.S. yields all combined to trigger Monday’s losses.
“There’s very little to be optimistic about,” said Zhang Fushen, a senior analyst at Shanghai PD Fortune Asset Management (LLP). “The shine from policy pledges of a few weeks ago is starting to wear off, especially with the situation in Shanghai. There is a gloomy atmosphere.”
READ: China Said to Limit Sales by Some Funds as Stocks Slide Again
China’s market regulator gave window guidance to some big mutual fund houses to refrain from net selling A-shares on Monday, according to people familiar with the matter. Still, the CSI 300 closed at its lowest since March 15 as foreign investors sold 5.8 billion yuan ($910 million) of local shares — the most in three weeks — according to data compiled by Bloomberg.
Recovery at Risk
Local equities rebounded from a historic rout in mid-March, as top officials made a sweeping set of promises from ending the crackdown on tech to supporting overseas listings. A majority of fund managers and analysts surveyed by Bloomberg at the end of last month said they plan to add to stock holdings, on bets the bottom has already passed, or is nearing.
READ: China Traders Gear Up to Add Stocks, Betting Worst Is Over
That investor optimism is being put to test as lockdowns in Chinese cities threaten business operations.
An announcement by China’s electric vehicle maker Nio Inc. that it halted car production, citing disruption from lockdowns, drove metals and battery stocks lower on the CSI 300 Monday. Battery giant Contemporary Amperex Technology Co. and Tianqi Lithium Corp. plunged 7.3% and 10%, respectively.
“The recent recovery rally in China’s equities is at risk from a protracted period of lower consumer spending on services from lockdowns that undermines housing sales,” said Stephen Innes, managing partner at SPI Asset Management.
A Bloomberg Intelligence gauge of developers lost more than 4% on Monday on concerns over the outbreak on sales and rental income. China’s smaller, tech-focused ChiNext Index slumped 4.2% to the lowest since July 2020.
READ: China Developer Rally Confronts Impatience for Policy Plan (1)
On a positive note, data released Monday showed China’s credit expanded faster than expected in March as economic activity resumed after the Lunar New Year holidays and bond sales accelerated. That suggests looser monetary policy stance has been flowing through to the economy, with analysts expecting more easing to come.
Risk Premium
In Hong Kong, Bilibili Inc. plunged 13% to be the biggest loser on the Hang Seng Tech gauge. China’s State Council issued new guidelines over the weekend on removing data monopoly at platform companies and preventing them from restricting competition.
Tech shares were lower across Asia on Monday as 10-year U.S. yields climbed through 2.75% for the first time since March 2019.
Investors are also keenly watching for developments related to a potential delisting of Chinese companies at American exchanges as Beijing vowed to defuse risks with a radical proposal.
“What we saw in March was a reduction in the regulatory risk premium with the U-turn by Chinese regulators regarding the potential delisting of U.S.-listings,” said Olivier d’Assier, head of APAC applied research at Qontigo.
“What we are seeing so far in April, is an increase in the regulatory risk premiums from the Covid-19 lockdowns, economic downgrades, and a deteriorating U.S.-China relationship. This will continue to weigh on sentiment and markets in the near-term,” he added.
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