Chinese US equities suffer worst two-day destruction since 2008

(Bloomberg) — Beijing’s sweeping crackdown on its technology and education sectors has sent shockwaves across global markets, wiping $769 billion in value from US-listed Chinese stocks in just five months.

The Nasdaq Golden Dragon China Index – which tracks 98 of China’s largest US-listed companies – fell 7% on Monday after regulators in China announced an overhaul of the education sector, which bans companies that teach school subjects from making a profit, raising capital. or go public. That adds to Friday’s 8.5% decline, bringing the meter’s two-day decline to 15%, the largest since 2008.

“The latest events arguably highlight that authorities are now more willing to upset investors in pursuit of their broader political goals than they were a few years ago,” Oliver Jones, senior market economist at Capital Economics, wrote in a note to clients. “It’s hard to say exactly what will happen on this front, but on balance it appears that downside risks to equities have increased,” he said.

Read more: China Crackdown Rocks Investors: ‘Everyone’s in the crosshairs’

Some major investors have already started unloading their shares. Cathie Wood’s flagship Ark Innovation ETF cut its holdings of Chinese equities to less than 0.5% this month, from a high of 8% in February. The fund has increased its position in technology giant Baidu Inc. completely abandoned and owns only 134 shares of Tencent Holdings Ltd. Its only other position, Chinese real estate site KE Holdings Inc., is down 60% so far this year.

TAL Education Group, New Oriental Education & Technology Group Inc. and Gaotu Techedu Inc., some of China’s largest education companies, all fell by at least 26% each Monday, adding to their record declines from Friday.

The trio have seen their stocks plunge into a prolonged decline since mid-February, bringing their average loss for the year to 93%.

Nor are they alone. In total, more than $126 billion in market cap has been wiped out this year from Chinese education stocks traded in the US, China and Hong Kong.

China’s new policy “makes these stocks virtually uninvestable,” said JPMorgan Chase & Co. analyst DS Kim. The “worst case became a reality,” he added.

While the pain was felt most by education and technology stocks, other sectors were also under pressure.

Shares of property management companies traded in Hong Kong plunged Monday after regulators said they were aiming to “improve order in the market in particular”. Meanwhile, food delivery giant Meituan saw its shares plummet by a record 14% when authorities in Beijing released a notice that online food platforms must, among other things, respect the rights of delivery people and ensure that workers earn at least the local minimum income.

This is because investors are also grappling with the looming threat that the U.S. Securities and Exchange Commission could force delisting of Chinese companies that fail to comply with a Trump-era law requiring them to disclose financial information to regulators.

“It is challenging for us to quantify the overall risks at this time, but it is clear that we are entering uncharted territory with substantial moving parts,” said Benchmark analyst Fawne Jiang.

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