Chinese stock sell-off evokes memories of 2008 crisis

The sell-off in Chinese stocks intensified on Tuesday. Concerns about the nation’s ties to Russia and persistent regulatory pressure sent a key index down to the lowest level since 2008.

The Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, slumped 6.6%, following a drop in the previous session that was the biggest since the global financial crisis. Tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. led the decline. The benchmark Hang Seng index plunged 5.7%, its biggest drop since July 2015.

China’s actions look increasingly risky on concerns that Beijing’s ties to Russia could spark new US sanctions. That adds to concerns about regulatory developments, including a possible delisting from US exchanges.

While economic data was positive for the market, increasing lockdown measures in major Chinese cities dim the outlook.

“The liquidation is exaggerated, but so is everything else.” said Andy Maynard, director of equities at China Renaissance Securities. “The market is crazy, there are no fundamentals anymore. This could be worse than the financial crisis of 2008″.

The Hang Seng Tech Index posted an intraday move of 10 percentage points on Tuesday, the steepest since the gauge was released in 2020, data compiled by Bloomberg show. China’s tech gauge lost 8.1%, extending the loss by nearly 70% from a February 2021 peak.

“When faith disappears, people are open to seeing the negative in everything, some are even suspicious of today’s strong economic numberssaid Yu Yingbo, investment leader at Shenzhen Qianhai United Fortune Fund Management Co Ltd. “It is just a planned, persistent and synchronized sale”.

The sell-off in Chinese stocks has been especially severe in the tech sector. A regulatory crackdown from Beijing and an imminent rate hike from the Federal Reserve have weighed on the sector, with the outlook for Chinese tech turning to fear in recent days as investors turned their attention to the risk of sanctions if China offers to help Russia in the war.

That prompted an 11% drop in the Hang Seng tech index on Monday, its worst daily decline since the gauge’s inception in July 2020. Analysts at JPMorgan Chase & Co. even say some Chinese internet stocks “they do not give to invest”.

On Tuesday, Chinese Foreign Minister Wang Yi — in his most explicit statement yet on US sanctions — said he wants the country to avoid being hit by US sanctions over Russia’s war. His comments failed to calm the markets. China’s CSI 300 index closed down 4.6%, the worst since July 2020.