Chinese Stocks Suffer Biggest Drop Since 2008, Wiping Out $2.1 Trillion Of Value

Chinese stocks listed in Hong Kong had their worst day of trading since the 2008 financial crisis as concerns over a COVID-19 outbreak and regulatory risks led to panic selling.

The Hang Seng China Enterprises Index closed down 7.2%, the biggest drop since November 2008. The Hang Sang Tech Index fell 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion U.S. in value.

The rout follows media reports that Russia has asked China for military assistance for its war in Ukraine. Traders worry that Beijing’s potential overture toward Vladimir Putin could bring a global backlash against Chinese firms, even sanctions.

Sentiment was also hurt by a COVID-19 induced lockdown in the southern city of Shenzhen, a key technology hub. That comes on top of a spate of regulatory worries. Tencent Holdings is reportedly facing a possible record fine for violations of anti money-laundering rules, which pushed that stock down nearly 10%.

There’s also a risk of Chinese firms delisting from the U.S. as the Securities and Exchange Commission (SEC) identified some names as part of a crackdown on foreign firms that refuse to open their books to U.S. regulators.

The Golden Dragon Index, which tracks American depository receipts of Chinese firms, has now slumped more than 10% for a second consecutive day, something that’s never happened before in its 22-year history. It fell 12% yesterday (March 14) to its lowest level since 2013. That followed a 10% decline last Friday (March 11).

The MSCI China Index has now seen its valuation cut by more than half from a February 2021 peak. The gauge is trading at about nine times its 12-month forward earnings estimates, versus a five-year average of 12.6.