US-traded Chinese stocks fall at fastest pace since 2008

HONG KONG • The worsening trade war between Beijing and the Washington is prompting investors to ditch Chinese shares traded in the US at a speed not seen since the global financial crisis.

The S&P/BNY Mellon China ADR Index has plunged 15 per cent this month, putting it on track for its worst monthly performance since October 2008. Social media firm Weibo Corp, online media company Sina Corp and Internet search firm Baidu have all declined more than 30 per cent. Losses are not confined to the US - in Hong Kong, the Hang Seng China Enterprises Index of Chinese firms is down almost 10 per cent.

The scale of the rout shows how tainted Chinese assets have become since the Trump administration stepped up pressure against Beijing this month by imposing tariffs and taking steps to limit the country's access to key technologies. Just three weeks ago, the S&P/BNY Mellon's ADR index was nearing a nine-month high, while the Shanghai benchmark's first-quarter rally was its best start to a year in a decade.

The timing of the slump is bad news for investors who track MSCI's global benchmarks. The index compiler is increasing weightings of Chinese mainland-listed companies in its gauges, which are already heavily dominated by overseas-traded Chinese firms. Chinese companies have contributed to more than a quarter of this month's declines on the MSCI Emerging Markets Index, led by Tencent Holdings.

A slumping yuan is adding to investor pain by reducing the value of Chinese company earnings when converted into dollars. The onshore Chinese currency is down 2.5 per cent this month, while the offshore rate is 2.8 per cent lower.

There is little sign that things will get better quickly. China blamed Washington for wrecking trade talks and insisted the US must alter its "wrong practices" before negotiations can resume. "If the US wants to resume talks, they should show sincerity and correct their wrong practices," Commerce Ministry spokesman Gao Feng said in Beijing on Thursday.

On the same day, US President Donald Trump described China's Huawei Technologies as "very dangerous", even as he said it could be included in some kind of trade deal with Beijing. His administration also proposed tariffs on goods from countries found to have undervalued currencies, which could broaden Mr Trump's trade salvos.

The Hang Seng China gauge is on track for its worst monthly drop since January 2016, with selling momentum at its most intense in 11 months. Among the laggards is Air China, down over 20 per cent this month. China Tower Corp has lost 18 per cent. The race for 5G supremacy has also been a contentious factor in China's relationship with the US.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 25, 2019, with the headline 'US-traded Chinese stocks fall at fastest pace since 2008'. Print Edition | Subscribe