(Bloomberg) -- Chinese companies listed in the U.S. are on pace for their longest losing streak in more than a decade after Beijing intensified its regulatory clampdown across various industries this week.
American depositary receipts for tech giants have racked up losses with Tencent Holdings Ltd., Alibaba Group Holding Ltd., and Nio Inc., erasing more than 9% each this week. The declines have sent the Nasdaq Golden Dragon China Index to lose nearly 8% of its value, wrapping up two months of declines.
Chinese state media called for tougher oversight to protect consumers, hurting liquor makers, cosmetics firms and online pharmacies. The Hang Seng Index plunged to enter a technical bear market as regulatory crackdowns spread across industries. This comes after policymakers in China released a fresh round of proposed regulations to further ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry.
The overnight news out of China remains “persistently negative,” said Michael O’Rourke, chief market strategist at JonesTrading.
The iShares China Large-Cap ETF (FXI), which houses both Alibaba and Tencent as well as other favorites of U.S. investors, fell 1%. The ETF has wiped out roughly 30% of its value from a February peak and is on track to close at the lowest since May 2020.
In the span of just six months the Nasdaq Golden Dragon China Index -- which tracks 98 firms listed in the U.S. that conduct a majority of their business in China -- has plunged about 51%. It gained 2.6% Friday as China’s securities regulators vowed to create conditions to push for cooperation with the U.S. on companies’ audit and supervision.
In recent days investors have started to exit U.S.-listed exchange-traded funds that focus on Chinese stocks, with the $4.7 billion KraneShares CSI China Internet ETF seeing four straight sessions of outflows. However, those outflows amount to only $78 million, accounting for a small fraction of the $3.8 billion in inflows the fund has seen this year.
In fact, across more than 40 non-leveraged U.S.-listed equity ETFs that are China focused, net inflows for the year are close to passing the $8 billion mark, according to data compiled by Bloomberg. The majority of that has come since early March when regulators in Beijing fined tech giants including Tencent and Baidu Inc. for past acquisitions and investments.
The continued inflow of money into ETFs is likely a result of some investors trying to time the end of the selloff, analysts said.
“It’s absolutely a sign that people are bottom calling here, said Bloomberg Intelligence ETF analyst James Seyffart. “Just trying to catch some sort of rebound but that obliviously hasn’t happened,” he added.
One possible catalyst that could turn the tide for shares is a rush of earnings over the next two weeks from some of the hardest hit stocks. Large-cap names including JD.com Inc., Pinduoduo Inc. and NetEase Inc. will all release second-quarter results which will be closely watched for any indication that the regulatory clampdown is having an impact on their bottom lines.
During Tencent’s earnings call on Wednesday, President Martin Lau told analysts that he is anticipating more regulation out of Beijing in the near future. “This should be expected because the regulation has been quite loose over an industry like the internet, considering its size and the importance,” he said.
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