By Sofia Horta e Costa and Jeanny Yu
Chinese stocks’ worst October start in a decade is scaring off the last remaining bulls.
Foreigners dumped 9.7 billion yuan ($1.4 billion) of yuan-denominated shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break. Ping An Insurance (Group) Co., Kweichow Moutai Co. and Hangzhou Hikvision Digital Technology Co. — old favorites that jumped at least 97 percent last year — were the most sold by overseas traders Monday.
The FTSE China A50 Index of China’s biggest companies sank almost 5 percent for its biggest selloff since January 2016, while the yuan slumped as much as 0.9 percent to 6.9315 per dollar, further damping demand for the nation’s assets.
Some traders said the apparent lack of support from the national team, as China’s state-backed funds are known, helped accelerate stock market declines in the afternoon. Easing measures from the People’s Bank of China didn’t blunt the pain, as investors focused on the recent barrage of negative news, including weak manufacturing data and accusations of election meddling. The slump followed losses of a similar magnitude by Chinese shares in Hong Kong last week.
“Foreign investors turned bearish, unlike their previous optimistic buying of Chinese A shares,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “The massive northbound selling is a sign of growing concern over the relationship between the U.S. and China.”
International investors had started to load up on Chinese shares as global index compilers increased weightings of yuan-denominated shares on their benchmarks and a slump made valuations more compelling relative to global peers. The nation’s equity market had already lost $2.4 trillion in value since January before Monday amid signs that deleveraging and a trade spat with the U.S. is hurting economic growth.
Aggravating declines for foreign investors is the yuan, which has tumbled 9 percent against the dollar in the last six months in one of Asia’s worst performances. The currency is close to falling past its August low of 6.9340 to levels last seen in January 2017.
The Trump administration is concerned about the yuan’s depreciation as the Treasury Department weighs whether to name China a currency manipulator in a report due out next week, a senior Treasury official said Monday.
Foreign demand for another type of Chinese assets will be tested later this week, when the nation markets a sale of dollar bonds.
Some brokerages are giving up their bullish calls on China’s equities. JPMorgan Chase & Co. cut its recommendation last week, following similar moves by Morgan Stanley, Nomura Holdings Inc. and Jefferies Group earlier in the year. HSBC Holdings Plc is sticking to the overweight rating it’s had on China throughout 2018. It’s been a “painful” call though, HSBC strategists said in a note Monday.
Mainland markets may struggle to find a floor if foreigners continue fleeing. Domestic demand for stocks has been muted since the bursting of an equity bubble in 2015 and attempts by policy makers this year to stem declines in stocks have been short-lived.
“The reserve requirement cut was within expectations and far from sufficient to counter the negatives on all fronts during the China holiday,” said Zhang Gang, Shanghai-based strategist with Central China Securities Co. “Even China’s state funds won’t be able to prop up the market until the systemic risks are all factored in.”
— With assistance by Amanda Wang