Published: July 28th, 2020
Right now, China traders, overseas investors, and company insiders have one thing in common; all are running away from Chinese stocks. With the worst hit to the relations between Beijing and Washington in years playing now, traders in mainland China and beyond dumped almost $2.5 billion worth of Chinese stocks on the last Friday.
The biggest threat to the relationship between China and the U.S. in years is playing out now. With rising tensions between the world’s two biggest economies, traders from mainland China and their colleagues from other places dumped more than $2.3 billion of Chinese stocks on Friday, July 24, alone.
This massive dumping spree caused the largest ever outflow recorded in Hong Kong’s exchange links. The share-discarding rampage involved several controlling stockholders in China’s tech stockholders who now want nothing but to get out as soon as is possible.
The CSI 300 Index, a capitalization-weighted stock market measure that weighs the performance of the leading 300 stocks sold on the Shenzhen bourse and the Shanghai Stock Exchange slid by more than 4% by the close of the trading session on Friday, July 24.
On the other hand, the ChiNext Composite Index, the subsidiary of the Shenzhen Stock Exchange that apes the NASDAQ, lost more than 6%, the worst performance since February 3.
Losses associated with the dumping increased when the Chinese Foreign Ministry announced that it had ordered the closure of the U.S. consulate in Chengdu in southwestern China. The retaliatory action follows Washington’s order to close a consulate of China in Houston, Texas.
The worsening tension and its effects on the markets could not have come at a more troubling period for China’s stocks. In the recent past, the Chinese government has moved to reign in on a debt-fueled frenzy. Equities had soared to their highest since 2015 as a result.
A portfolio manager at Keywise Capital Management (HK) Ltd, Ken Chen said that the market worries created by the worsening relations would influence the tide for a considerable period.
Chen added that the markets are watching closely to see how Washington responds to the closure of its consulate in Chengdu. He expects more panic selling to continue in the near-term.
China’s yuan went down in tandem with the stocks. The Chinese currency lost almost 0.3% to stand at 7.0238 against the U.S. dollar. This value represents the currency’s weakest point since July 8.
However, China’s government bonds stretched their impressive performance. Futures contracts on the 10-year notes soared by 0.36%, the best performance in four weeks. Despite the gains by the government bonds, the yield on the debt due in ten years was not as lucky, dropping five basis points, a 2.86% slide which is the worst since the beginning of July.
In Chinese-speak, overseas investors liquidated 16.4-billion-yuan worth of China stocks in Friday, July 24 trading. This figure is just slightly shy of the record 17.4 billion yuan that traders discarded on July 14. Overall, turnover shot up to 1.3 trillion yuan. The sales on Friday, July 24, mark just the 17th session that has recorded turnover of more than 1 trillion yuan.
Amid the misery surrounding China stocks, the CSI 300 index still is 10% up for 2020 and is among the leading performers among global benchmarks. The president of China Vision Capital, Sun Jianbo, said most operators could not predict what will happen on the macro events arena in the long-term, but the wise focus on the growth potential of their firms and the assets under management.
Sun’s China Vision Company, a global asset management company based in China, is among the firms making the most of the misfortunes of China stocks. Sun admitted that his company took advantage of the massive sale to snap up a portion of the equities. As a result, his fund’s total assets have ballooned by 20%.
Sun said that China Vision Company has been cutting stocks even a few days before the sale. He suspects that his fund is locked in profits and is safe should any eventualities arise.
In the U.S., the story was the same, albeit for a different reason. Wall Street witnessed an erosion that left the U.S. stocks in the worst position in four weeks. The decline in Wall Street was exacerbated by the unemployment data released on Thursday, July 23.
According to the report by the U.S. Department of Labor, the country reported the first weekly rise in individuals filing for unemployment in four months.
This rise in unemployment numbers surfaced days before the enhanced unemployment benefits are meant to expire. Policymakers in Washington are discussing the possibility of extending the stimulus, but nothing positive is yet to come from the said discussions. If Washington agrees on an extension, Americans who were rendered jobless because of the pandemic will get $600 a week.
The poor performance of the U.S. stocks is also blamed on the increasing cases of infection of COVID-19. Investors fear that many states and cities may have to roll back the reopening processes that began a month ago.
AXA Investment Managers’ chief investment officer for core investments, Chris Iggo, said that the markets are in a precarious period because if the infections do not hit a peak soon, then activity levels may reduce significantly. He added that the fact that many investors think that a severe recession lies ahead only makes the situation worse.
The S&P 500 Index shed 1.2% with shares of consumer discretionary and tech companies taking the biggest hit. Amazon, Apple, Alphabet, Facebook, and Microsoft all shed more than 3%.
Following an escalation of tensions between China and the U.S. after Washington ordered the closure of a Chinese consulate in Houston, China stocks took a hit with most investors dumping their holding. Almost $2.5 billion of Chine stocks were sold on Friday, July 24, alone. However, the misfortune is not limited to China stocks only. Wall Street also saw a dip in American equities. Investors interpreted the increased unemployment in America to spell doom.