(Bloomberg) -- For American investors, Chinese stocks are becoming the asset not to own.

Influential investors like George Soros have trimmed their China exposure, and Cathie Wood’s ARKK ETF no longer holds any such shares. Many others got hit with losses, according to their 13F filings. Betting against the country’s stocks was one of the most crowded trades among managers surveyed by Bank of America Corp. In London, Marshall Wace -- one of the world’s largest hedge funds -- says Chinese ADRs are now uninvestable. 

This is a huge turnaround from earlier in 2021, when global investors pumped more money into the country’s domestic equities than any time in history and the MSCI China Index rallied to a 27-year high. Now global fund managers are grappling with trillion-dollar losses as China’s government targets industries that threaten its goal for “common prosperity.” Selling continued this week even as the MSCI China Index trades at the lowest level since 2005 versus the S&P 500. 

Regulatory pressure in both China and the U.S. is intensifying. Securities and Exchange Commission Chair Gary Gensler on Monday warned about the risks of investing in Chinese companies and asked SEC staff to take “a pause for now” in approving IPOs of shell companies that Chinese firms use to list. The Nasdaq Golden Dragon China Index -- which tracks 98 of China’s biggest firms listed in the U.S. -- fell for a sixth straight day on Tuesday after Beijing issued a new set of rules aimed at preventing unfair online competition.

Paul Marshall, co-founder of $59 billion investment firm Marshall Wace, said China’s crackdown on its technology and education sectors has repelled investors, even if authorities have sought to limit the damage. It’s now more likely that the country’s listings will be largely confined to the mainland, the billionaire predicted in a letter to clients last week.

The MSCI China Index has dropped almost 30% since its peak in February, dragged down by declines in the education sector that top 90% for firms like Tal Education Group and Gaotu Techedu Inc. Tencent Holdings Ltd. -- China’s biggest listed company -- is near a one-year low. By contrast, the S&P 500 is up 13% in the period, while the MSCI All-Country World Index has gained 6.9%. And while Wall Street strategists keep downgrading their China recommendations, analysts haven’t been this upbeat on S&P 500 companies in two decades.

Betting against Chinese shares is increasingly popular. According to Bank of America’s latest survey of fund managers, about 11% of investors surveyed viewed “Short China Stock” as the most-crowded trade, trailing only “Long U.S. Tech Stocks” and “Long ESG.” It got more votes than “Long U.S. Treasuries.” About 16% of those surveyed said “China policy” is the biggest risk now, up from almost zero in July. It ranked just behind inflation, a taper tantrum, Covid-19 and an asset bubble.

The rout in Chinese shares means the nation’s companies are disappearing from the rankings of the world’s biggest by market capitalization. Tencent is the only Chinese firm still among the 10 largest publicly-listed companies, at no. 10, and is close to being overtaken by Visa Inc.

Some investors are seeing value. Aberdeen Standard Investments bought the dip in Tencent and kept most of its other big-tech holdings in China largely unchanged during the recent selloff, according to Hugh Young, the chairman of its Asian unit. 

“I don’t think anything strategic has changed” in China and regulations will benefit the responsible players, said Young.

Staying the course is proving a tough test as losses mount. While a gauge of mostly Chinese tech shares in Hong Kong rose 0.9% on Wednesday morning, that came after a five-day, 9% decline. The index is down 25% this year. 

©2021 Bloomberg L.P.