How China’s Stock Market Collapse Is Endangering US Investors

Equity futures slip ahead of Tuesday’s open, following more fallout from China’s regulatory crisis, which drove Hong Kong’s Hang Seng Index HSI,
-4.22%
to its lowest since November 4, 2020.

Of course, the Hang Seng also fell 4% on Monday and US stock market indices closed at record highs.

Whether or not investors should be concerned about what’s happening in the world’s second-largest economy could face a few questions, says Sven Henrich, founder of NorthmanTrader.com, tells MarketWatch: “Are they? [China] worried about an asset bubble and they let the air out before it pops hard and does more damage? Or are they the canary who says the recovery is already past its peak? Or both? One wonders. If either is true, US stocks are at risk of going bankrupt.”

That brings us to our call of the day by The market ear blog, which breaks down some potential risks to the markets and one possibility: major investors hurt by the fallout from China may be less willing to take risks elsewhere.

“The stress we see in Chinese technology is now spreading to other sectors. Sure, for now this is a local problem, but it could potentially become a global problem, mainly due to risks in terms of P&L [profit and loss]. The loss of value is significant and the pain is being felt worldwide,” the blog said.

For example, the holders of Tencent 700,
-8.98%
– down 8% on Monday and another 7% on Tuesday – are predominantly non-Chinese, as evidenced by the holdings:

FactSet Research

Then there is Alibaba 9988,
-6.35%,
which lost 6% on Monday and the same Tuesday.

“BABA’s largest holder is Softbank 9434,
+0.14%.
This is a long-term investment, but we all know that when you lose large amounts of money in one ‘trade’, you are reluctant to take on more risk in other areas. There’s also the potential effect of ‘financing’ losses in crashing assets by selling out profits (a misconception too many people still make),’ according to the Market Ear blog.

FactSet Research

“Last week’s last victim was the edtech sector. Top 10 holders of TAL Education TAL,
-26.67%
are all western names. You get the point. Losses are not just a local problem. And we wouldn’t be surprised if some hedge funds reported significant losses for the month of July. Movements like this usually have some blood in the water,” said the blogger.

Market Ear concludes with a little history lesson about a boom in Chinese stocks that started in mid-2014 and ended with a massive crash in 2015.

“During the first phase of the sell-off, it was considered a local Chinese stock market bubble that imploded. Some 2.5 months later, [S&P 500] decided to be concerned and developed markets puked massively as the second phase of the sale of Chinese stocks resumed,” the blogger said.

Get ready for big tech earnings

Tech giant results are expected after the shutdown, as Apple AAPL,
+0.29%,
Google parent alphabet GOOGL,
+0.77%
and Microsoft MSFT,
-0.21%
report results.

Read: Amazon reports after Thursday’s closing. This is what you can expect

Revenue rolls out, with medical device manufacturer Boston Scientific BSX,
-0.34%
make a profit, parcel shipper United Parcel Service UPS,
-0.84%
report positive results, while in conglomerates 3M MMM,
+0.59%
raised its outlook and GE GE,
+1.65%
posted a turnover. Chipmaker advanced microdevices AMD,
-0.36%
and coffee maker Starbucks SBUX,
+0.07%
come after closing time.

tesla tsla,
+2.21%
Profits surpassed $1 billion for the first time in the electric car maker’s history and sales nearly doubled, surpassing expectations, though CEO Elon Musk noted a “serious” chip shortage is cutting production and slowing his commercial truck. .

Intel INTC,
+2.47%
shares slip after the chipmaker revealed a production schedule stretching through 2025.

In addition to kicking off the Federal Reserve’s two-day meeting, data will be released Tuesday, including durable goods orders, the S&P Case-Shiller home price index, the Conference Board’s consumer confidence survey and housing job openings.

Read: How the 10-Year Treasury Rate and the S&P 500 Performed as the Fed Winded Down in 2013

On the COVID-19 front, US officials have afunctionarissen ‘don’t travel’ order for Spain and Portugal, citing high infection levels.

the markets

Dow Futures YM00,
-0.27%
were down more than 100 points, with those ahead of the S&P 500 ES00,
-0.19%
and Nasdaq-100 NQ00,
-0.02%
were also softer. Bitcoin BTCUSD,
+1.15%
has abandoned some of its weekend profits after Amazon reportedly denied it plans to accept cryptocurrencies by the end of the year, speculation sparked by a digital-themed job listing.

The graph

The results of Deutsche Bank’s monthly market sentiment survey in July provided many insights into how people feel about COVID-19 regulations. The below reveals that many believe that airlines, nightclubs and any gathering of large crowds should ask for vaccine certificates.

Random reads

Ernest Hemingway lookalike winner is crowned at Sloppy Joe’s Bar in Florida.

Female weightlifter Hidilyn Diaz wins gold for philippines, the first in her country in 97 years. She also gets a house and 10 million pesos.

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