This week is not off to a good start for many Chinese stocks. A Covid-19 outbreak in Shenzhen, a major tech hub, is causing lockdowns. News last week that five Chinese companies failed to meet audit requirements and could therefore be delisted is also weighing on stocks.
Chinese Stock News: What’s Happening?
With such negative market dynamics, it’s no surprise that many top Chinese companies are plunging today.
Baidu (NASDAQ:BIDU) is down 5% while JD.com (NASDAQ:J.D.) fell more than 6%. In addition to the more general problems, regulatory action has pushed Tencent (OTCMKTS:TCEHY) down 7% while Pinduo-duo (NASDAQ:PDD) has fallen more than 8% so far. An outlier was Global DiDi (New York stock market :HAVE I GOT), which only managed to rise 1% today.
why is it important
A Covid-19 outbreak is never good news for financial markets. China is currently working hard to contain the worst wave of cases it has seen since the start of the pandemic. The new wave comes at a time when other factors were already pushing stocks down in several sectors.
Many Chinese companies have been on high alert since 2021, when the United States announced tougher penalties for international companies that failed to meet audit requirements. The news sent many Chinese stocks plunging as delisting fears spread rapidly. Months later, the United States Securities and Exchange Commission (SEC) showed that it would not back down on these policies. Bloomberg reports that the Chinese equity selling panic has already taken hold on Wall Street.
It’s also far from reassuring to see a city like Shenzhen facing lockdown. It will mean further supply chain disruptions at a time when manufacturers were already facing delays. It doesn’t help that Tencent can face record fines for anti-money laundering violations. The company’s WeChat Pay subsidiary is accused of allowing the transfer of funds for “unlawful purposes”, including gambling.
What this means
Like InvestorPlace Eddie Pan, associate financial news editor, reports that “a host of potential macro risks” loom as investors ponder the uncertain future for many Chinese stocks. Regulatory fears combined with the threat of further shutdowns create a troubling industry landscape.
When all the major Chinese stock news is bleak, it’s hard to view the financial landscape with much optimism. It may be wise for investors to proceed with caution and wait out the storm.
At the date of publication, Samuel O’Brient held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.