Investors offload shares over regulatory concerns
Hong Kong's benchmark index and mainland A-shares extended sharp losses to end at multi-month closing lows on Tuesday as investors worried over the impact of tighter government regulations.
What started off as a sell-off in shares bled into fixed income and foreign exchange markets by afternoon, sending the yuan falling through psychologically significant levels and pushing Chinese 10-year government bond futures down 0.35 percent, as traders scrambled to come to terms with the rout.
"I can only understand that domestic speculative longs have surrendered and stampeded in the face of uncertainty," said a Shanghai-based brokerage manager.
The onshore and offshore yuan turned around sharply from small gains against the dollar to weaken past 6.5 per dollar to more than three-month lows.
In equity markets, Hong Kong's benchmark Hang Seng Index fell 4.22 percent to its lowest close since November, bringing its losses since Thursday to more than 9.5 percent. The Hang Seng China Enterprises Index closed 5.08 percent lower.
The Hang Seng Tech index slumped through its previous record low to end down 7.97 percent on the day. It has lost more than 16 percent since Thursday's close.
The Hang Seng's losses accelerated in late afternoon trade after index heavyweight Tencent announced that its WeChat app has temporarily suspended registration of new users in China's mainland as it is "upgrading our security technology to align with all relevant laws and regulations." The company said registration service is expected to be restored in early August.
Tencent ended the day 8.98 percent lower, its steepest daily drop since October 2011.
Beijing-based tech consultant Zhou Zhanggui said investors were over-reacting to the "rectification" of Chinese tech companies. "The suspension of new user registrations on WeChat has no substantial impact on Tencent in the short term," Zhou said.
Keso Hong, an independent industry analyst, said Tencent's share price decline was triggered by changes in the overall regulatory environment. "It happened today after the market panic kept building up," he said.
Food delivery platform Meituan fell 17.66 percent, its biggest-ever daily drop, after China's market regulator announced a set of reforms to strengthen protections for food delivery workers.
The Hang Seng Healthcare Index also recorded a record drop, falling 9.25 percent as investors feared the sector could be the next target of stricter government oversight.
In mainland markets, blue-chip CSI300 index ended down 3.53 percent at its lowest close since November, extending Monday's 3.2 percent sell-off. The Shanghai Composite index gave up early gains to end 2.49 percent lower at 3,381.18, its lowest close since March 25.
Falls were wide-ranging, with the CSI financial sector sub-index down 3.17 percent, the consumer staples sector off 4.75 percent and the health-care sub-index down 3.9 percent.
The rout came after a shakeout on Monday spurred by new rules reining in China's US$120 billion private tutoring sector. Education shares continued to slide, with New Oriental Education & Technology Group Co falling 8.63 percent, taking its drop over the last three sessions to more than 70 percent, while the CSI education index tumbled 4.97 percent.
Anita Chu, an analyst at CCB International, said in a research report that the regulatory environment could force firms to spin off after-school tutoring operations or even delist, and issued a downgrade and reduced the target price for New Oriental.
"According to our estimates, the potential spinoff of (after-school tutoring) operations would take 60-70 percent off the earnings of New Oriental and 80-90 percent off (New York-listed) TAL Education."
In Hong Kong, heavily indebted developer China Evergrande Group extended its losses, spiralling 13.41 percent lower to end at 4 1/2 year lows, after the company said it would cancel a special dividend proposal.