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Sell-off in China shares extends rout in US-listed shares

A sell-off in Chinese shares overnight in Asia extended the rout in U.S. markets on Tuesday, with a gap in volatility indexes signaling further weakness ahead, as tighter government regulations in China led investors to dump holdings.

Sell-off in China shares extends rout in US-listed shares

FILE PHOTO: An investor sits in front of a board showing stock information at a brokerage office in Beijing, China, December 7, 2018. REUTERS/Thomas Peter

NEW YORK: A sell-off in Chinese shares overnight in Asia extended the rout in U.S. markets on Tuesday, with a gap in volatility indexes signaling further weakness ahead, as tighter government regulations in China led investors to dump holdings.

The iShares China Large-Cap ETF , which tracks an index of large Chinese companies that trade on the Hong Kong Stock Exchange, slid 3.3per cent and the Invesco Golden Dragon China ETF, which mimics a Nasdaq index of the same name, fell 5.4per cent. The two ETFs closed at lows last seen in June 2020.

Among well-known Chinese multinationals, e-commerce oriented Alibaba Group Holdings Ltd fell 3.0per cent and internet services company Baidu Inc lost 2.8per cent.

The dive could get deeper as the gap between the Cboe China ETF Volatility Index and the Cboe Volatility Index - the so-called Wall Street "fear gauge" - grew to a record high 30 points.

Past instances when the two volatility gauges have diverged widely have heralded further weakness for Chinese stocks, according to Chris Murphy, co-head of derivative strategy at Susquehanna International Group.

What started off as a sell-off in equities bled into fixed income and foreign exchange markets earlier in Asia, sending the yuan falling through psychologically significant levels and pushing Chinese 10-year government bond futures down 0.35per cent, as traders scrambled to come to terms with the rout.

The rout came after a shakeout on Monday spurred by new rules reining in China's US$120 billion private tutoring sector, sending some shares plunging more than 45per cent, and new regulatory moves targeting technology and property.

Adding to broader concerns about the economic outlook, profit growth at China's industrial firms slowed for a fourth straight month in June, as high raw material prices weighed on factories' margins.

(Reporting by Herbert Lash; Editing by David Gregorio)

Source: Reuters

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