(Bloomberg) — The relentless selloff in Chinese technology stocks continued on Monday, as Beijing’s close relationship with Russia raised risks for mainland companies already battered by renewed regulatory headwinds.
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The Hang Seng Tech Index slumped more than 9%, poised for the largest drop since the guage was introduced in July 2020 and driving losses in broader Hong Kong and China stocks. The Golden Dragon Index, which tracks American depository receipts of Chinese firms, plunged 10% on two consecutive days last week — something that’s never happened before in its 22-year history.
The tumble follows a report that showed Russia has asked China for military assistance for its war in Ukraine. Traders worry that Beijing’s potential overture toward Vladimir Putin could bring global backlash against Chinese firms, even sanctions.
That comes on top of a spate of regulatory worries. The U.S. Securities and Exchange Commission last week named its first batch of Chinese stocks as part of a crackdown on foreign firms that refuse to open their books to U.S. regulators, heightening delisting risks. Also a growing Covid-19 outbreak in China and a lockdown in tech hub Shenzhen are clouding earnings outlook.
“At this stage, we still see the technology space as very vulnerable,” said Jun Li, chief investment officer at Power Pacific Investment Management, adding that the firm is avoiding Chinese ADRs. “It is very difficult to evaluate the risk profile at this stage.”
The Hang Seng Index fell as much as 4.8% on Monday, while China’s benchmark CSI 300 index was down as much as 3.1%. The onshore yuan also fell to its weakest in a month as sentiment toward Chinese assets turned sour.
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Both Hang Seng Tech Index and the Nasdaq Golden Dragon Index have lost more than 60% from their peaks, respectively. On Monday, Alibaba Group Holding Ltd. sank as much as 9.6% in Hong Kong while Tencent Holdings Ltd., which is headquartered in Shenzhen, was down more than 6%.