Hong Kong shares succumbed to outright panic on Monday amid a bevy of concerns ranging from COVID to US delistings to reports the Kremlin asked Beijing to provide Russia with military support for the war in Ukraine.
I typically describe city shares as “perpetually beset.” Last month, while documenting yet another leg lower for big Chinese tech, I said it’s “hard to conjure an adjective sufficient to convey how onerous the threat of new regulatory scrutiny is, especially for Hong Kong-listed mega-caps.” That remains true. At any given time, news of new restrictions tied to Xi Jinping’s “common prosperity” push and related anti-capital measures can short circuit fledgling rebounds despite ostensibly attractive valuations.
The bottom line: If it’s not one thing, it’s another. Hong Kong shares have been mostly uninvestable for a year, and big-cap Chinese tech since November of 2020, after Jack Ma’s ill-advised decision to critique regulators prompted Beijing to ice Ant’s star-crossed IPO, kicking off what quickly morphed into an aggressive anti-monopoly probe that engulfed Alibaba and its peers. For a time, Mainland equities fared better, but they too fell into a bear market and have subjected investors to roller coaster swings of late, as state-backed funds attempt to put a floor under benchmarks.
That brings us to Monday. Beijing denied reports that Russia sought military assistance, but it scarcely mattered. China locked down Shenzhen and called for all residents to be tested three times. Public transportation was shuttered, and only businesses providing essential services will be allowed to open. No one can leave the city, or at least not without submitting a negative test. Foxconn suspended operations at its facilities, one of which makes iPhones. Shenzhen boasts a bustling port and the headquarters of multiple major firms, including Tencent. Jilin province, which borders Russia and North Korea, was also put into lockdown.
China reported 3,300 new daily COVID cases over the weekend, a figure that counts as a lot under Xi’s “zero-COVID” policy, which critics have long derided as wholly untenable. Hong Kong is still grappling with a vicious outbreak, which officials generally blame for the Shenzhen surge. The Jilin measures appeared to represent the first inclusive provincial lockdown since Hubei.
Between all of that, rumors that Tencent might be staring at a record fine for running afoul of anti-money laundering laws and the ever-present risk of US delistings, Hong Kong shares simply collapsed on Monday. The Hang Seng fell 5%, dropping below 20,000 in what counted among the worst single-session declines in recent memory (figure on the left, below).
The Hang Seng China Enterprise gauge, which last week dropped to the lowest since 2009, suffered its largest one-day rout since the financial crisis (figure on the right, above).
For the Hang Seng Tech Index, the poster child of Hong Kong’s perpetual bear market, Monday’s rout was almost too bad to believe. The gauge, which was parked near 11,000 this time last year, dropped to just 3,778.
The one-day loss for mega-cap Chinese tech was a truly harrowing 11% (figure below). That brought the total value lost since the highs to $2.1 trillion.
Tencent fell 10%, Alibaba 11% and Meituan 17%. The latter’s three-day loss is an astounding 26%.
Mainland shares weren’t spared. The CSI 300 dove more than 3%, and the yuan dropped to its weakest in a month. Investor psychology is very poor, and so is anyone who insisted on catching falling knives in Hong Kong.
The losses came on the heels of two consecutive 10% down days on the Nasdaq Golden Dragon Index. At the current juncture, there’s no price cheap enough for Chinese shares. As one emerging markets specialist told Bloomberg, “it’s true that the valuation is cheap but if you are desperately closing your positions, valuations don’t matter.”
To the extent Monday’s rout was, in part, attributable to concerns around China’s efforts to assist the Kremlin, militarily or otherwise, it underscored the peril for Xi of bailing out Vladimir Putin.
At a global level, it certainly seems that we have a battle heating up:
Capital that is supported by property rights/rule of law (with low level systemic corruption) vs. capital backed by outright corrupt dictatorships/no property rights (or a “thin veneer” of perceived property rights).
There are about 195 countries in the world – the vast majority of countries do not have what I would consider “true property rights”- including China. The vast majority of global capital is in the countries with enforceable property rights. The vast majority of the 8B people in the world live without enforceable property rights.
The US is like a gated community in the world. Somewhat oblivious to what is happening outside the gate, but also somewhat protected…..
Waking up from a dream into a nightmare. Will Consumer-Idiot-America just self-medicate as usual and go back to sleep to dream about empires and glory days gone past?
What were the Muskoids and their K-street jelly lubricated Pols smoking when they paved the way for and then built those factories after the previous Cold War? Without the Chinese-crabAAPL assembly lines humming will the world’s retirement accounts have their ‘performance’ pressured while everyone waits to see what rabbit Cook pulls out of his asshat next? Probably. Is this really how civilized people want to live? Is this what ‘educated’ Homo saps want for their progeny? “End of history”, remember that one? “Move fast and break stuff”, hows that working out? As always, Hubris never learns, or soon forgets, it is History that moves fast and breaks shit when the time for rebalancing of human affairs and reality can no longer be forestalled. But what does Hubris on it’s gated islands care for Tipping Points as long as the rest of us have to clean up the mess? Is there going to be some sort of reckoning when the dust settles? Not likely. Better to prepare for the worst. Grab whatever leftover K-street jelly lubrication you can scoop up and assume the position, taxpayer!
“Is this really how civilized people want to live?” Apparently. Read the latest Notes from Disgraceland concerning the Metaphysics of Stupidity. The future is out of our hands. The IQ curve has taken control.
Mr. Lucky: Read that Disgraceland note, and thought – yes, this explains Trumpism and a lot of other crazy sh*t. But then thought – the IQ curve has always been there, and somehow we muddle thru. But of course, that pendulum swings wildly and breaks a lot while we muddle….
Kevin, there is a difference between stupid and crazy. For a another clue about tRumpism, google “mad as a hatter” and then “mercury in coal burning power plants”. You’ll find that EPA officials estimated that about 50 tons of elemental mercury are emitted each year from U.S. coal-burning power plants, with lesser amounts coming from oil- and gas-burning units. Breathing and consuming food containing this Hg explains a lot about the tRumpers. They can’t help it.
One difference is that where that 16% (or whatever it was) in the past was ignored, it has now been intentionally and aggressively weaponized, and squarely in the age of ubiquitous communication.