Chinese Stocks Crash

Tencent has wiped out another $100 billion today, down 9% after suspending WeChat new signups for a “security technical upgrade” in accordance with relevant laws and regulations. It is down 25% this month.

Contemporary Amperex Technology (CATL), the lithium batteries manufacturer that supplies Tesla, fell 8.3% as did other likewise manufacturers.

The Hang Seng Tech index (HSTECH) has fallen another 8% with it down more than 40% since February as pictured above, while the Hang Seng Index dropped 4.2%, down 14% this month.

Shanghai stocks fell ‘only’ 2.5%, but FTSE’s A50 top Chinese companies dropped 4%. The CSI 300 Index of top Shanghai and Shenzhen listed companies is down 3.5% today, having fallen 10% this month.

“We’re more bullish on developed markets versus emerging markets,” said Daniel Gerard, a senior multi asset strategist at State Street Global Markets as investors seemingly shift their focus after two decades of betting on China.

That follows new restrictive measures by the Chinese Communist Party (CCP), but in China they blaming a rumor that US may restrict investment by US funds in China.

That hasn’t been confirmed with it unclear whether that’s more a result of a game of Chinese whispers where US funds selling off Chinese stocks translates to new US restrictions.

Another rumor going there according to local media is that Chinese companies listed in the United States must disclose potential policy risks, otherwise they may violate the law. The market is worried that the United States will launch a formal investigation into the disclosure of information by Chinese companies, they say.

On the other hand investors are worried China may stop new companies from IPO-ing in US and it may even take punitive measures against listed companies as it did against Didi.

Investors are concerned about what CCP might do next as the Party gets more and more involved in having a say over market operations.

“We could see times when markets become concerned that China’s policy setting might be excessively tight,” BlackRock strategists said in a note to clients on July 26. “That points to downside risks in the short term.”

The big question is of course whether this is a short term readjustment as the CCP perhaps tries to burst some bubbles in a managed way, or whether this is a canary indicating growth has peaked in China after four decades without one recession.

In addition the capricious nature of CCP’s interventions creates uncertainty for the investment environment in China with the surprising restrictions on educational stock being the latest example that shocked the market.

This sell off therefore is accounting for that political uncertainty at the same time as America and Europe becomes more appealing from an investment perspective with the consumer confidence in US rising for a sixth straight month.

Thus you’d think some of this capital taken off Chinese stocks will go towards US and Europe as well as maybe bitcoin to hedge a potential worsening of the situation in China with CNY down again today to above 6.5 per dollar, falling by 0.42%.