Chinese stocks trading in the U.S. tumbled Monday, after Chinese stocks listed on the Hong Kong Stock Exchange fell 7.2% earlier in the day. That was the biggest slide in more than 13 years.
The drop stemmed from several factors. First, there’s concern that China’s close relationship with Russia could backfire on Chinese companies. Russia has reportedly asked China for military assistance. And U.S. officials have said it will take serious action to make sure this doesn’t happen. Investors worry that might include sanctions against Chinese companies.
In addition, China is dealing with another outbreak of Covid, locking down Shenzhen, an important technology center; Jilin, a northern province; and some housing and office facilities in Shanghai.
Furthermore, last week, the Securities and Exchange Commission cited five Chinese companies listed on U.S. exchanges for failing to make their audits available to the regulators. That could eventually lead to the companies getting delisted from U.S. exchanges.
The companies include Yum China Holdings (YUMC) – Get Yum China Holdings, Inc. Report, which operates KFC in China, and biotechnology stalwart BeiGene (BGNE) – Get BeiGene Ltd. Report. The list could grow in the weeks ahead, according to Morgan Stanley strategists cited by The Wall Street Journal.
The regulatory climate in China also is negative for the stocks. Regulators there announced new rules to protect young people. Live streaming, online gaming and audio and video platforms will have to establish a “youth mode” for minors.
Also, technology/entertainment titan Tencent, which isn’t listed in the U.S. but trades over the counter TCEHY, may get stocked with a record fine for breaking money-laundering laws, according to The Journal.
Among the biggest Chinese stocks listed in the U.S., e-commerce stalwart Alibaba (BABA) – Get Alibaba Group Holding Ltd. Report dropped 7% Monday, and has plunged 65% in the past year. Fellow e-commerce giant (JD) – Get JD.com Inc. Report also fell 7% Monday, and has lost 48% in the last year.
Internet technology company NetEase (NTES) – Get NetEase Inc. Report also fell 7% Monday and has shed 31% in the past 12 months. Artificial intelligence/Internet company Baidu (BIDU) – Get Baidu Inc. Report fell 6% Monday and has lost 58% in the last year.
And the prognosis isn’t positive going forward. “We don’t see a major catalyst in the near term,” to lift Chinese stocks, Marvin Chen, a strategist at Bloomberg Intelligence, told Bloomberg News.