It’s Bad In China. And Worse For Hong Kong Tech

Last week, I whispered about a “global tech bear market.” The poster child, I noted, was the Hang Seng Tech index.

Rising yields (especially in the US) have kneecapped tech and other high-fliers the world over. It’s as if many market darlings “forgot” to drop off the envelope to Silvio Dante, and now Paulie Walnuts is at the front door.

On Monday, tech shares in Hong Kong were bludgeoned — again. After falling into a bear market last week, the tech index dropped nearly 7%, extending what can only be described as a God-awful rout (figure below). The gauge fell almost 15% in three sessions.

More broadly, Hong Kong shares finished deep in the red to kick off the new week but, again, it was the underperformance in tech that really stood out.

This has ramifications beyond equities. For example, losses in large-cap tech shares are spilling over into the Hong Kong dollar, which could suffer from outflows tied to the burgeoning stock rout and a rethink from investors who may have “parked” in HKD anticipating more IPOs, according to Bloomberg’s Mark Cranfield.

For the better part of a month, the story has been one of egregious underperformance (figure below). Monday was the worst day yet (in relative terms).

On the mainland, stocks are in a correction — and then some. A 3.5% slide to start the week drove the CSI 300 below its 100-day moving average.

Just two weeks ago, the gauge was perched at its highest since 2007, having eclipsed levels seen during the 2015 Chinese equity bubble. Now, it’s unwinding, thanks to “profit-taking” among other factors.

Locals have a penchant for getting emotional both on the way up and on the way down. Currently, they don’t sound particularly optimistic.

“There is to some extent a stampede and any rebound now would just be paving the path for a further drop,” one fund manager told Bloomberg Monday. (Try not to laugh. Despondency is a cousin of depression.)

Kweichow Moutai continues to be a source of consternation. It dropped another ~5% to start the new week. The liquor maker’s recent stumbles make for amusing headlines. They’ve also made life miserable for managers whose funds rode the company’s shares to whatever counts as “fame” in China’s onshore market.

As Chinese shares climbed steadily higher during the back half of 2020 and into 2021, the percent of SHCOMP members trading above their 200-day moving average moved lower, falling from more than 80% last summer to below 30% recently. As Bloomberg put it in the linked article (above), “bad breadth… may finally be catching up to China’s benchmark.”


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