Listen to this articleSince the global financial crisis, the Chinese stocks registered in Hong Kong marked their lowest day. The move came following concerns over close connections between Russia and China. The increasing risks over revived rules and regulations also influenced slump selling.
On Monday, the Hang Seng China Enterprises Index closed declined with a major drop since November 2008 at 7.2%. The Chinese Tech Index cluttered 11% in its lamest drop since the launch in July 2020. It also declined $2.1 trillion in the last year’s high value. The key reason behind the massive drop was a recent report.
The report cited US officials that the Russian government has requested China to provide military assistance for its troops in Ukraine. However, the Chinese officials have rejected the report and pointed out concerns from traders. The officials said Beijing’s potential proposal regarding President Putin could spark a global response against Chinese firms including sanctions.
Covid-19 Related Lockdown in Shenzhen
Moreover, a Covid-19 related lockdown in the southern city of Shenzhen also affected the scenario. The point to be noted is that it is a key tech hub in Shenzhen city of Jilin province. Multiple reports say Tencent Holdings Ltd., is experiencing a supposed record penalty for violating the anti-money-laundering laws and regulations. On Monday, it powerfully pushed the stock down around 10%.
The US SEC (Securities & Exchange Commission) mentioned names of foreign firms as part of a crackdown. These foreign firms have rejected to open their books to US regulators. It increased the risk for Chinese firms over supposed delisting from the United States.
Most investors have become nervous after various major funds reported considerable financial damages related to Russia. Moreover, the funds of Black Rock Inc. were exposed to Russia have decreased $17 billion since the beginning of the war.
Golden Dragon Index and CSI 300 Index
The Golden Dragon Index tracks American depositary receipts of Chinese firms dropped 10% for the 2nd continuous day, on Friday. On Monday, the index decreased around 13% after making its sharpest weekly drop since 2001. On Monday, the Chinese benchmark CSI 300 Index closed 3.1% lower. The onshore yuan also decreased to its weakest in a month.
A strategist at Bloomberg Intelligence, Marvin Chen said there isn’t a major incentive in the near future to support Chinese stocks. However, the earning results could bring significant vaporization in price. We need to get changes in regulations for a material classification of Chinese tech.
China Bulls and MSCI China Index
The recent historic decline in tech stocks is also puzzling China bulls. Its stocks increased this year with the easing policy from the People’s Bank of China. Moreover, Goldman Sachs Group Inc. strategists have moderated their slight anticipation of the Chinese stocks. They are slashing their valuation and estimation for the MSCI China Index.
Chen said we stay fleshy China on supposed growth expectations related to easing regulations, low investor positioning, and discouraged valuations. However, it lowered the 12-month valuation objective from 14.5 times to 12 times with the changes. These changes include the global macro environment and geopolitical worries.
Keep in mind that the MSCI China Index has experienced its valuation at least split from the peak in February 2021. The company is trading at around 9 times more than the 12-month estimated earnings compared to 12.6 of the 5-year average. Meanwhile, the valuation is cheap but it doesn’t matter if you are immensely closing your positions.
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