Chinese stocks fall as traders praise a new reality in the wild week

(Bloomberg) — Chinese stocks fell on Friday, rounding out a volatile week for investors who struggled to give up in Beijing’s tightening regulatory grip after a defeat pushed the country’s main stock index to the brink of a bear market.

The CSI 300 index fell 1% towards midday, led by consumer and healthcare stocks, reversing Thursday’s gains. In Hong Kong, the Hang Seng index, which had its biggest two-day loss since 2008 earlier this week, fell 2.1%. Alibaba Group Holding Ltd. fell a whopping 5.9%, while Meituan lost 8.9%. Tencent Holdings Ltd. lost 4.4%.

Investors are grappling with an uncertain regulatory landscape, given the range of sectors targeted by the government. From the derailment of Ant Group’s blockbuster IPO at the 11th hour to rules that curb monopolistic practices in the Internet landscape, reduce influence in the real estate sector and reshape the tutoring industry, the investor playbook continues to change rapidly.

“It’s the fear of the unknown,” said Justin Tang, head of Asia research at United First Partners. “The market sentiment is on thin ice. Investors probably expected more meat, but they were only given bones regarding details of the Chinese government’s urging to calm down.”

The stock market’s sharp falls this week were driven by China’s move to ban parts of its thriving tutoring industry from making a profit. It was the government’s most extreme move yet to rein in companies it blames for increasing inequality, increasing financial risk and challenging the Communist Party’s grip on key segments of the economy. the economy.

The ensuing defeat was ferocious enough for Beijing to signal its discomfort. State media published a series of articles suggesting the sell-off was overdone, while the national securities regulator held a video conference with bank executives Wednesday night to get the message across that education policies were not designed to harm companies in other sectors.

“Confidence has not yet been fully restored,” said Steven Leung, Executive Director of UOB Kay Hian (Hong Kong) Ltd. “Investors need more explanation from regulators to clarify these policy uncertainties.”

The People’s Bank of China pumped a larger amount of cash than usual into the financial system for a second day in a row. The central bank injected 30 billion yuan ($4.6 billion) in short-term liquidity, after adding the same amount in the previous session. According to analysts, the move was made to calm market nerves and ensure sufficient cash by the end of the month.

China’s CSI 300 index is expected to close about 8% lower for the month, which would be its worst performance since October 2018. The Hang Seng Index is down about 11% for the period.

BNP Paribas lowered its Chinese weighting to neutral from overweight in the broker’s model allocation to Asia, excluding Japan. “We think regulatory pressures may persist for now,” analyst Manishi Raychaudhuri wrote in a note dated Thursday, adding that Chinese tech hardware, mobile gaming, electric-car-related stocks and new energy “may be relatively immune.”

winners

Renewables and semiconductor stocks were bright spots during the defeat, with the top 10 performers on this week’s CSI 300 all having to do with the themes. Industrial Components Manufacturer Sungrow Power Supply Co. and Semiconductor Manufacturing International Corp. gained at least 25%, as the companies would benefit from China’s structural shift towards more innovation. The Star 50 Index, which counts such companies as members, is up 2.2% in the past five days and is on its way to a nearly three-week high.

Meanwhile, the Hang Seng Tech Index fell by a whopping 4.5%. Friday’s drop followed a decline in US-listed Chinese stocks on Thursday as investors passed the gains of Didi Global Inc. watched, amid reports that the ride-hailing company was considering going private.

(Updates everywhere, adds analyst quotes)

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