Worries that foreign capital will run screaming for the exits (if it hasn’t already) were gas on the fire Tuesday, as Chinese shares extended one of the most abrupt and brutal routs in recent memory.
The Hang Seng Tech Index dropped another 8% if you can believe it, bringing the three-session decline to 15%. The gauge has now erased its gains since launch. It’s down ~43% since the highs (figure below). Market participants spoke of “capitulation,” as equity outflows appeared to accelerate.
Two weeks ago, I suggested Xi may want to “stop engineering bear markets in Hong Kong.” Not to put too fine a point on it, but this is what I meant. Beijing may have pushed the envelope too far. City shares are imploding.
Xi may not “want your money” (as I put it Monday), but if the bleeding doesn’t stop, this episode has the potential to irreparably harm international investor confidence.
At the lows, the city benchmark dropped nearly 6% Tuesday. That would have been the worst single-session slide since May of last year (figure below).
Ultimately, the Hang Sang closed more than 4% lower for a second day. It’s on the brink of a bear market.
This of course comes on the heels of the latest iteration of Beijing’s sweeping regulatory crackdown, which now encompasses everything from mega-tech to food delivery to ride-hailing to tutoring services. Nobody knows who’s next. And that’s a big part of the problem.
There was bad news everywhere you looked. China Evergrande fell more than 13% after canceling a special dividend. Meituan, which was a disaster on Monday after the State Administration for Market Regulation ordered online food platforms to uphold the rights of delivery employees, fell another 18%. At one point, Tencent fell 10%, the most in more than a decade (figure below).
Heard among retail investors: “This is it guys. Happy position building traders!” (Insert sitcom laugh track.)
Mainland shares were similarly beset. The CSI 300 was down almost 7% for the week after back to back losses of more than 3%.
But the real concerns manifested in the yuan and Chinese bonds, both of which dove. 10-year yields jumped 7bps, the most in a year, while the yuan slid through 6.50 (figure below).
That’s trouble. There were “liquidation” whispers floating around.
“There’s a widespread rumor in the market that some US funds are selling Hong Kong and China assets aggressively,” one trader from Guoyuan Securities told Bloomberg, summing up what’s rapidly morphing into… well, into the sum of all fears.
It’ll be supremely ironic if the vaunted “National Team” is forced to step in to arrest the equity slide.
Sometimes Nihilism becomes the special of the day.
Other days Irrational Exuberance fills the plate.
These balance out the monetary lunch of plain old PB&J.
The Supreme Leader probably has a bunion that’s bothering him.
Remain calm and carry on.
Good day to buy
When you sup with the devil, bring a long spoon.
No one should doubt that the leadership of the CCP thinks in much longer time frames than Wall Street, or Washington DC for that matter. In the sweep of history, this is just a blip. Remember what Zhao Enlai said when asked of his opinion of the French Revolution: “It’s to early to tell.”
“It’ll be supremely ironic if the vaunted “National Team” is forced to step in to arrest the equity slide.”
Otherwise, executions may follow.
Anyone get the feeling that Xi may be “losing it?”
It’s too early to tell.