A dark cloud over Chinese stocks

Shares in Chinese companies have experienced the biggest two-day fall since 2008 amid growing regulatory pressure.

Shares in Chinese companies have plunged amid growing regulatory pressure. The Nasdaq Golden Dragon China index, which tracks Chinese firms listed in America, fell by 15% on Monday and Tuesday, the biggest two-day plunge since 2008. China’s benchmark CSI 300 index fell by 6.5% over the same period. Tech firms slumped, with Tencent’s shares in Hong Kong down by nearly 16% over Monday and Tuesday. The latest falls followed news of a ban on for-profit school tutoring, a big industry in Asia.  

The sell-off underscores just “how fragile investors’ confidence has become after a months-long regulatory onslaught”, say Jeanny Yu and Livia Yap on Bloomberg. Beijing is intent on reining in “private enterprises it blames for exacerbating inequality” and “increasing financial risk”. The realisation that regulators are willing to impose “short-term pain” on markets while pursuing “longer-term socialist goals has been a rude awakening for investors”.  

As of 5 May, there were 248 Chinese companies with listings in the US. Companies such as Alibaba and Pinduoduo have listings in America in order to access Western capital markets. There is now a “dark cloud hanging over” these stocks, writes Therese Poletti for MarketWatch. The next one in the firing line? The Chinese authorities have made their displeasure clear with ride-hailing app Didi, which recently listed in New York.

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