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China’s crackdown stocks extend declines into a third day

Technology and education shares retreated once again while property stocks also fell. Tencent slumped over 6%.
Image: Qilai Shen/Bloomberg

Chinese shares in the crosshairs of Beijing’s regulatory crackdown extended their sharp selloff into a third day Tuesday.

Technology and education shares retreated once again while property stocks also fell. Tencent slumped over 6%, after the company’s music arm gave up exclusive streaming rights and was hit with fines. Meituan fell as much as 13% after its record 14% decline on Monday.

The Hang Seng Tech Index dropped as much as 4% and has now fallen into negative territory exactly one year after it was first launched. The broader Hang Seng Index also retreated.

“The key concern now is whether regulators will do more and expand the crackdown to other sectors,” said Daniel So, strategist at CMB International Securities Ltd. “The regulatory concerns will be the key overhang to the market for the second half.”

So added that it was too soon in his opinion for investors to “bottom fish.”

Regulatory crackdown

A Chinese regulatory crackdown on some of the economy’s most vibrant sectors, including education and technology, has rocked investors this month. Stocks tumbled in “panic selling” on Monday after regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum.

Hong Kong’s major retail brokers lowered margin financing for battered Chinese education stocks as investors suffered steep losses.

Beijing is attempting to rein in private enterprises that it blames for exacerbating inequality, increasing financial risk and challenging the government’s authority.

Meanwhile, sentiment toward property stocks was hit as China Evergrande Group surprisingly decided against declaring a special dividend after investors were spooked by news that banks and ratings companies are growing wary of the debt-laden developer. Its shares fell as much as 12.7%.

A Bloomberg Intelligence index of Chinese property developers slid as much as 2.4% on Tuesday after slumping almost 5% on Monday as investors feared regulations on the sector will tighten further.

© 2021 Bloomberg

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This mess proves once again what the late Dr Simeon Marais of Allan Gray said years ago ie only invest in a country where there is rule of law.

In the case of China -the law comes after the Communist Party and while the USA market soars(especially Tech) China s ,despite great management, customers and growth is going nowhere fast.

If you are investing your money, and not speculating, probably best to avoid any equity exposure to a one Party State with limited rule of law. SA investors, many hopelessly exposed to the negative value creating Naspers and Prosus are paying the price of investing in a country struggling to be communist and capitalist-it simply cannot work!

The Great Party has got it so wrong-global markets are booming while the lawless mongrel of capitalism combined with communism is totally dysfunctional. Its either one system or the other dear comrades!!

End of comments.

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