“We should just close this market,” Bloomberg TV’s David Ingles sighed, just before the start of trading in Hong Kong on Tuesday.
Tencent was indicated down 15%, suggesting big-cap Chinese tech, which JPMorgan called “uninvestable” on Monday, was set for another egregious rout.
By the time the dust settled, Tuesday was the wildest day for the Hang Seng Tech Index ever. The gauge moved in a 10% intraday range (figure below) on the way to an 8.1% decline.
Through Tuesday’s close, the index was down nearly 22% over just three sessions.
It’s impossible to overstate the scope of these losses. Tuesday’s rout marked a wholly dubious encore following Monday’s 11% drubbing. The tech gauge, comprised of China’s most recognizable corporate behemoths, has now lost nearly three quarters of its value after peaking some 13 months ago (figure below).
One analyst who spoke to Bloomberg Tuesday summed it up. “It’s just a planned, persistent and synchronized selling,” he said.
JPMorgan on Monday called the near- to medium-term outlook “binary.” “A large number of global investors are in the process of reducing exposure to the China internet sector, leading to significant fund outflows from the sector,” the bank said.
The city benchmark fared little better. The Hang Seng fell almost 6% on the day, bringing March’s losses to almost 19%. It was the worst session since 2015.
That’s free fall. Tencent fell another 10%. Alibaba 12%. Meituan another 6%.
I documented all the factors weighing on sentiment here on Monday. Suffice to say nothing changed over 24 hours.
The losses aren’t confined to city shares. Mainland stocks are in a tailspin as concerns around China’s worst COVID outbreak since the start of the pandemic and attendant lockdowns are insult to injury for fragile investor psychology.
The CSI 300 fell almost 5% Tuesday, the biggest one-day loss since the summer of 2020. The MSCI China now trades the cheapest to global shares ever. The Mainland benchmark is on track for a fourth consecutive weekly loss (figure above).
Part of the problem relates to worries that Xi Jinping may tempt fate by assisting Russia in Vladimir Putin’s war in (or maybe “on” is better) Ukraine. China dismissed US officials’ assertions that the Kremlin already requested military and economic aid as “disinformation,” but that clearly wasn’t enough to calm frayed nerves among investors already wary of Chinese shares.
On Tuesday, Foreign Minister Wang Yi told Spain that China “is not a party to the crisis, nor does it want the sanctions to affect China.”
That was the most explicit statement yet from Beijing regarding China’s intentions. It also underscored one simple fact that’s often lost in overzealous de-dollarization banter: China needs US dollars just like everyone else.
Talk about telegraphing your feelings there. We don’t condemn the unwarranted attack on a sovereign nation but we don’t want sanctions either. Part of me now wonders if Xi may be seeing some opportunity in Putin’s failure to swiftly secure Ukraine. If the sanctions work as intended and Russia fails economically, which should also lead to government overthrow, perhaps a broken Russia is an opportunity to grow China’s oil reserves?
China is looking to inherit Russia on a silver platter. A broken Russia still a good inheritance.
Food and fiat make the world go round contrary to Raymond Dalio, gold has always been along for the journey as cutlery. Chinese imperial history shows this loud and clear.
Russia may boarder China, but they don’t have a history of playing kissy face. In fact, it’s the opposite. And Putin getting cozy with Xi is a product of necessity – Russia, to the extent it remains the communist power it was historically (in Putin’s eyes), is a fading entity. And I reckon that’s why Putin invaded Ukraine. He needed his Russia to have a “boost.” But his actions are yielding the opposite of his desired outcome.
The Ukrainian Ambassador to the US has stated with great certainty that Ukraine will win this war, and he’s not just being a proud ambassador when he says so. A number of US generals and admirals have commented on the limited ability of Russia to sustain its fighting posture in this war. Just today I saw a retired US Army general who gave the Russian army less than two weeks before they start running out of the people, equipment, and the fuel needed to wage war in Ukraine. This remains to be seen. But assuming the Ukranian Ambassador and various retired US general staff military are correct, we shouldn’t have long to wait before the landscape begins to shift.
Russia straddles Europe and Asia, but the Russians have some genuine historic roots in Europe. And Europe is a place of flourishing democratic and liberal governments and institutions, in which Ukraine wishes to continue participation. While Putin would like to quash that wish, some say, he may be quashed by his own party buddies, or Russian army officers who were buddies with the generals killed in Ukraine. If Putin’s “buddies” don’t throw him out, the spread of democracy across Europe is likely to take hold in Russia, as in the days of Yeltsin, which is what Putin fears. And the Russian people may ultimately have something to say about it as well, whether Putin likes it or not.
We don’t know the future. But Putin makes his own bed. It’s very possible that democratically elected government will continue in Ukraine. Furthermore, Ukraine will receive sympathetic and very substantial support to rebuild its country after the Russians and Putin are vanquished, assuming that, indeed, happens.
I reckon that Vlad has shot himself rather badly in the foot. Unfortunately, President Xi can’t really do anything to help him with that.
Focusing on the 16% on the right side of the curve is where I spend my efforts. This 16% has taken man from hunter gathers to farmers. From farmers to domesticating farm animals. From cooking over a fire to forging iron and steel. From using wood to coal to oil to renewables and (we are well on our way) to safe nuclear for energy. Raising food, water, health, housing and energy security for the 8B on the planet will slow down the birth rate.
It is not a straight line- but it absolutely is happening.
Some very interesting thoughts shared above. I would indeed think China thinks it is now best to sit it out and buy(take) Russian assets post war for cents on the Yuan. However, I think they are mistaken. Putin has raised the stakes so high that nothing short of regime change will end this conflict and he’s probably not done escalating. The more Putin escalates, the higher the price the Russian establishment would pay. Hopefully, there are forces within Russia that can short circuit the current path toward WWIII that Putin has already likely decided on.
In my mind, when everything is done, I think you’ll have something similar to a W Germany/Japan post WWII social/governmental re-engineering closely tied to the west with significant reparations to Ukraine. For Russia to be brought back into the global (western) financial system, significant safe guards would need to be put in place including jailing all of Putin’s inner circle (Putin would likely be dead), Nuremberg like trials for every member of the Duma, dissolution of the Russian military, dissolution of the FSB and all other intelligence agencies, and an economic plan approved by a “global alliance”. Russian resources would first be pledged to reparations to Ukraine, then to stabilizing the Russian economy, and then to other interests.
China will possibly be part of the “global consortium”, but I think they would find themselves in less of a position of advantage than they currently believe.
The outcome Hopium outlines could be a good one, as long as it happens prior to a major nuclear, chemical or biological confrontation. Europe had this opportunity when the Soviet Union disolved at the beginning when Yeltsin began prior to Putin. At that time if they had opened their wallets, and instituted a plan similar to the Marshall plan but for Eastern Europe they could have formed a European project including Russia. Then they could have mothballed NATO. They were timid and let that opportunity pass. Now the bigger bill is coming due.
@Hopium Dealer, that suggests Russia may not be brought back into the Western financial system for a generation, because that list of things doesn’t happen to a nuclear-armed state. A “captive supplier” would be just fine with China, I imagine.
I have been thinking how the reconstruction and re-arming of Ukraine can be financed. Possibilities:
1. Confiscate Russian reserves and assets and transfer to Ukraine as war reparations.
2. Levy fees on Russian gas transiting through pipelines in Ukraine.
3. Develop Ukraine’s NG resources to replace Russian NG.