Investors' sentiment turned sour after a report that Shanghai has seen an increasing number of Covid-19 cases and widening lock-downs in certain districts and neighborhoods. Shanghai has a population of about 25 million, and it is the largest economic center in China. This follows a Covid-induced lockdown in the southern city of Shenzhen, a city of 17 million people and key technology hub, and the northern province of Jilin.


Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling.



The Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008. The Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak.


A report citing U.S. officials that Russia has asked China for military assistance for its war in Ukraine. Even as China denied the report, traders worry that Beijing’s potential overture toward Vladimir Putin could bring a global backlash against Chinese firms, even sanctions. 





That comes on top of a spate of regulatory worries. Tencent Holdings Ltd. is reportedly facing a possible record fine for violations of anti money-laundering rules, which pushed the stock down nearly 10% on Monday. There’s also a risk of Chinese firms delisting from the U.S., as the Securities and Exchange Commission identified some names as part of a crackdown on foreign firms that refuse to open their books to U.S. regulators.





“If the U.S. decides to impose sanctions on China in total or on individual Chinese companies doing business with Russia, that would be a concern,” said Mark Mobius, who set up Mobius Capital Partners after more than three decades at Franklin Templeton Investments. 


Investors have reason to be jittery after several big-name funds reported significant losses related to Russia. BlackRock Inc.’s funds exposed to Russia have plunged by $17 billion since the war began.


On Friday, the Golden Dragon Index, which tracks American depository receipts of Chinese firms, slumped 10% for a second consecutive day -- something that’s never happened before in its 22-year history. It fell as much as 13% Monday after posting its steepest weekly decline since at least 2001. China’s benchmark CSI 300 Index closed 3.1% lower on Monday.

Even amid the rout, mainland traders have continued to snap up Hong Kong stocks, though that’s proving insufficient to buttress share prices. They have been net buying Hong Kong equities via the stock connect in every session since Feb. 22, loading up $1 billion on Monday, the most since January.


The historic slide in tech stocks is baffling China bulls, the number of which had grown this year as strategists bet on a rebound thanks to policy easing by the People’s Bank of China.



Goldman Sachs Group Inc. strategists toned down their optimism slightly on China stocks, slashing their valuation estimates for the MSCI China Index.


“We stay overweight China on well-anchored growth expectations/targets, easing policy, depressed valuations/sentiment, and low investor positioning,” but lower our 12-month valuation target from 14.5 times to 12 times on changes in the global macro environment and higher geopolitical risks, strategists including Kinger Lau wrote in note dated Monday.


The MSCI China Index has seen its valuation more than halve from a Feb. 2021 peak. The gauge is trading at about 9 times its 12-month forward earnings estimates, versus a five-year average of 12.6.


“It’s true that the valuation is cheap but if you are desperately closing your positions, valuations don’t matter,” said Yasutada Suzuki, head of emerging market investments at Sumitomo Mitsui Bank.