Beijing’s crackdown on its technology and education sectors has wiped out $ 769 billion in value of Chinese stocks traded in the US in the span of just five months.
Beijing’s radical crackdown on its technology and education sectors has unleashed shockwaves across global markets, erasing $ 769 billion in value of US-traded Chinese stocks over the course of just five months.
The Nasdaq Golden Dragon China Index, which tracks 98 of China’s largest U.S.-listed firms, plunged 7% on Monday after China’s regulators released a review of its education sector that bans companies that teach school subjects make a profit, raise capital, or go public. . That is in addition to Friday’s 8.5% drop, bringing the indicator’s two-day drop to 15%, the biggest since 2008.
“Arguably recent events highlight that policymakers are more willing to upset investors in pursuit of their broader policy goals now than they were a few years ago,” wrote Oliver Jones, senior markets economist at Capital Economics in a note to the clients. “It’s difficult to say precisely what will happen next on this front, but overall, it appears that downside risks for equities have increased,” he said.
Some big investors have already started to divest their shares. Cathie Wood’s flagship Ark Innovation ETF cut its holdings of China shares to less than 0.5% this month from a high of 8% in February. The fund completely ditched its position in tech giant Baidu Inc. and owns just 134 shares of Tencent Holdings Ltd. Its only other holding, Chinese real estate site KE Holdings Inc., has fallen 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, fell at least 26% every Monday, adding to their record drops since Friday.
The trio have seen their stocks stuck in a prolonged slide since mid-February, bringing their average loss for the year to 93%.
They are not alone either. In total, more than $ 126 billion in market capitalization has been erased from Chinese education stocks trading in the US, China and Hong Kong this year.
China’s new policy “makes these stocks virtually impossible to invest,” according to DS Kim, an analyst at JPMorgan Chase & Co. The “worst-case scenario came true,” he added.
While education and technology stocks have felt the most pain, other sectors were also under pressure.
Property management stocks traded in Hong Kong fell on Monday after regulators said they aimed to “noticeably improve order” in the market. Meanwhile, food delivery giant Meituan saw its shares drop by a record 14% when Beijing authorities issued a notice that online food platforms must, among other things, respect the rights of delivery personnel. and ensure that workers earn at least the local minimum income.
This comes as investors also face the looming threat that the U.S. Securities and Exchange Commission could force the exclusion of Chinese companies that do not comply with a Trump-era law that requires them to disclose financial information. to regulators.
“It is challenging for us to quantify the overall risks at this point, but it is clear that we are entering uncharted territory with substantial moving parts,” according to Benchmark analyst Fawne Jiang.