China Stocks Take U.S. Traders on Wild Ride as Volatility Soars

  • Nasdaq Golden Dragon China Index extends losses for the week
  • Didi, Pinduoduo and tumble for a second straight day

U.S.-listed Chinese stocks were clobbered again at the end of a tumultuous week of trading marked by regulatory and geopolitical concerns.

The Nasdaq Golden Dragon China Index closed 10% lower on Friday to the lowest level since September 2015. The gauge posted its fourth straight week of losses — the longest such stretch since October, amid renewed regulatory concerns.

Didi Global Inc. shares sank 44% Friday after suspending preparations for its planned Hong Kong listing after failing to appease Chinese regulators’ demands that it overhaul its systems for handling sensitive user data, according to people familiar with the matter.

“Some investors clearly believe the risk is not worth the reward in this environment,” said Michael O’Rourke, chief market strategist at JonesTrading.

Worries over the economic impact from rising inflation, a resurgence of Covid-19 cases and mounting tensions between Washington and Beijing have combined with added clampdowns to send Chinese shares on a wild ride. The Nasdaq Golden Dragon China Index has seen its 30-day realized volatility surge to the highest since January 2009.

Technology companies including Pinduoduo Inc. and Baidu Inc. each lost more than 10%. Meanwhile, American depositary receipts of Alibaba Group Holding Ltd. and Inc. dropped at least 6% each.

This comes after the biggest one-day slide since October 2008 by the tech-heavy Golden Dragon gauge on Thursday as the U.S. Securities and Exchange Commission identified five Chinese companies that could be subject to delisting if they failed to comply with certain auditing requirements. That plunge followed Wednesday’s 6.4% surge, which was its biggest in more than a month.

The Golden Dragon index has already lost 34% this year after sinking about 43% in 2021.

Heightened Volatility

“The selling was indiscriminate,” said Jian Shi Cortesi, a portfolio manager at GAM Investment Management in Zurich, adding that investors may have been concerned about the perceived inability to trade U.S.-listed Chinese stocks. “While many funds have transferred or plan to convert their holdings from ADRs to Hong Kong shares, retail investors, family offices or some financial advisors may simply sell. Such selling pressure could lead to heightened volatility,” she added.

Investors have also started pulling cash from the KraneShares CSI China Internet Fund, with eight straight days of withdrawals totaling roughly $340 million, data compiled by Bloomberg show. The fund is now on track for its first month of outflows this year amid a slump in its share price — KWEB on Thursday posted a 9.8% decline and is trading at its lowest level since 2013.

The picture isn’t much better for the first batch of Chinese stocks named by the SEC as part of its crackdown on accounting practices by foreign firms. Four of the five companies identified — Yum China Holdings Inc., Zai Lab Ltd., ACM Research Inc. and HUTCHMED (China) Ltd. each ended the week lower by at least 20%. The fifth, BeiGene Ltd., tumbled more than 8%.

“Chinese ADRs remain catnip for a certain group of risk-tolerant trading accounts,” said Steve Sosnick, chief strategist at Interactive Brokers LLC. “It’s a fool’s errand to try and out guess what Beijing or Washington intends to do.”

Authors: Matt Turner, Farah Elbahrawy, Bloomberg

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