(Bloomberg) — The selloff in Chinese stocks deepened Friday afternoon as disappointing tech earnings hurt sentiment already weakened by worries about Donald Trump’s impending return.
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The mainland CSI 300 Index fell 3.1%, the highest since October 9. The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong lost 2.1%, ending a second straight week of losses. A gauge of Chinese technology stocks in Hong Kong plunged into a technical bear market.
The pullback extends the market’s decline since a peak in October, underscoring growing frustration over the pace of Beijing’s fiscal stimulus rollout and jitters over a possible escalation of US-China tensions. The disappointing profits from the consumer sector PDD Holdings Inc. and online search company Baidu Inc. have further eroded confidence, with the latter’s shares briefly plunging 10% in Hong Kong due to a drop in sales.
Traders also pointed to Texas Governor Greg Abbott’s statement dated November 21, which banned state agencies from pouring new money into investments originating in China and urged the divestiture of previous holdings. That exacerbated fears that some of the largest US funds would avoid investing in China for political reasons.
The statement from Texas has “affected sentiment, especially when the market lacks momentum,” said Steven Leung, executive director of UOB Kay Hian Hong Kong. Investors also “felt no improvement, from real estate and equities to consumption, and no positive surprise from corporate earnings either.”
Traders have looked to China’s tech earnings to regain confidence about the economy’s trajectory, only to be faced with the harsh reality of anemic consumer spending. Baidu Inc. posted the biggest drop in sales in more than two years. PDD warned that profitability will decline over time due to increasing competition in its home market of China.
The Hang Seng Tech Index fell 2.6% on Friday, from a high in October to more than 20%.
The outlook for the market is in question after a huge rally in late September, driven by monetary easing, lost momentum. Wall Street analysts, including those at Morgan Stanley and CLSA, have recently downgraded their recommendations on Chinese stocks. However, some have said a sell-off will be an opportunity to add positions as Beijing likely has sufficient policy tools to counter the US president’s tariff proposals.
