Worst Hit in Global Markets Rout: Tech and China

Date : 10/11/2018 @ 12:28PM
Source : Dow Jones News
Stock : Amazon.Com, Inc. (AMZN)
Quote : 1643.24  2.21 (0.13%) @ 1:00AM

Worst Hit in Global Markets Rout: Tech and China

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3 Months : From Sep 2018 to Dec 2018

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By Steven Russolillo, Shen Hong and Mike Bird 

In a stock market selloff that has rippled around the world, tech and China are the biggest losers--and remain vulnerable to more pain.

China's stock markets were among the hardest hit Thursday after steep declines in the U.S. the day before. The technology-heavy Shenzhen market slid 6.5%, while the Shanghai Composite fell 5.2%--both marked their worst declines since February 2016.

Within China, tech companies were the biggest victims, finding themselves whacked by overlapping forces: a broad global selloff in internet companies, and an escalating trade spat between Beijing and Washington that has fallen squarely on China's biggest tech suppliers.

"Everything is going down," said Caroline Yu Maurer, Hong Kong-based head of Greater China equities at BNP Paribas Asset Management. "In China, the domestic economy is the primary concern. On top of that you get the trade war issues. And now tech stocks in the U.S. are selling off."

While tech losers in the U.S. such as Amazon.com Inc. and Netflix Inc. are falling from record highs, the Chinese market is going from bad to worse. It was already one of the worst-performing markets in the world this year. Shenzhen's main index has now fallen 32% for the year.

Other tech-dominated markets in Asia also fell sharply Thursday. Taiwan's Taiex fell 6.3%, its worst slide since January 2008. South Korea's Kospi index dropped 4.4% and Japan's Nikkei 225 index skidded 3.9%.

While the trigger for this week's decline may have been rising bond yields in the U.S., China's tech sector was already in a fragile position.

Washington has recently accused Beijing of tech-related spying and raised concerns about human-rights violations. Potential U.S. sanctions against Chinese tech companies could result in the disappearance of a major market for their products.

Hong Kong-listed shares of ZTE Corp., a top seller of smartphones to the U.S. for years, fell 6.7% on Thursday and have lost nearly one-fourth of their market value in October. Hong Kong-listed Lenovo Group Ltd., a Chinese maker of PCs and servers, has fallen 18% this month.

"The prospect of suffering a ban on their products in the crucial U.S. market has sent chills among investors who are worried about the companies' future financial performance," said Shen Meng, director at Chanson & Co., a boutique investment bank in Beijing.

Nearly a third of the 3,551 companies listed in Shanghai and Shenzhen had their share prices hit the 10% lower daily trading limit Thursday.

Tencent Holdings Ltd., the most valuable company listed in Asia, has lost more than a third of its market value this year and is down $250 billion from its record high in January, according to FactSet. That drop alone is bigger than the market values of all but 15 of the companies in the S&P 500.

The selloff for Tencent accelerated with shares falling 6.8% Thursday--a record 10th straight down session. The Chinese tech giant owns popular social-messaging app WeChat and is one of the world's largest videogame publishers by revenue.

The tough times for Chinese stocks have hurt many of the funds that track their performance. China-focused hedge funds are down 9.5% on average this year through September, according to data provider eVestment. That compares with an average gain of 35% for these funds in full-year 2017.

The iShares China Large-Cap exchange-traded fund, one of the largest Western ETFs tracking equities in the country with just under $5 billion in assets, fell by around 6.4% on Wednesday and Thursday.

The tech-led decline has Mattias Lamotte, chief executive at Vallotte Holdings, a proprietary trading firm in Hong Kong, running for cover. "That might be a signal of a bear market in the next 12 months," he said.

Mr. Lamotte said the rout reminds him of the early-2016 market selloff in which growth stocks in sectors such as technology led the carnage. In 2016 the S&P 500 fell by more than 10% from the start of the year through mid-February.

Also weighing on Chinese markets: its weakening currency. China loosened lending conditions this week even as the Federal Reserve has signaled its rate increases would continue apace. That has sent the yuan to near its weakest level of the year against the dollar. In offshore markets, the Chinese currency was slightly down on the day at 6.9416 to the dollar.

The yuan hasn't passed 7 to the dollar in more than a decade. In 2015 and 2016 when the currency weakened sharply, the depreciation sparked capital outflows from China, an outcome that Beijing is eager to avoid this time around.

To be sure, investors have been here before. At the beginning of the year, markets grew concerned about the size and clout of U.S. tech stocks, particularly amid fears of increased regulatory oversight. That selloff proved short-lived.

Olivier d'Assier, head of applied research for the Asia-Pacific region at Axioma, said he saw reasons not to panic unduly about the latest market declines.

"What we saw today was an orderly risk-off, flight-to-safety move, not a fire sale, get out of Dodge and head for the door collecting cash as you go by," he said.

Write to Steven Russolillo at steven.russolillo@wsj.com, Shen Hong at hong.shen@wsj.com and Mike Bird at Mike.Bird@wsj.com


(END) Dow Jones Newswires

October 11, 2018 08:13 ET (12:13 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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