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China tech sell-off slows as investors wait on Beijing’s next move

Chinese equities updates

A sharp sell-off in Chinese stocks slowed on Wednesday as investors caught their breath after Beijing’s crackdown on education and technology companies prompted an epic rout this week.

Hong Kong’s Hang Seng fell as much as 1 per cent, taking the index 20 per cent lower from its February high and putting it on the cusp of a bear market, after tumbling more than 5 per cent on Tuesday. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 0.3 per cent after a 3.5 per cent fall in the previous session.

The plunge in Chinese tech stocks on Tuesday came as internet group Tencent announced that it had halted registrations on its flagship WeChat app “to align with all relevant laws and regulations”. The company’s shares fell 5 per cent on Wednesday after shedding 10 per cent the previous day.

Global investors’ concerns are rising over a broad crackdown by Chinese authorities on numerous sectors. On Friday, a leaked memo tipped a sweeping overhaul of China’s $100bn private education industry, threatening to wipe out billions of dollars of foreign investment. The regulatory changes were confirmed over the weekend.

Overnight, the Nasdaq Golden Dragon China index of US-listed Chinese tech stocks dropped more than 5 per cent, bringing the benchmark’s losses since the memo leaked to more than 19 per cent.

The state-run Securities Times attempted to ease concerns among Chinese investors in a front-page commentary on Wednesday, suggesting the country’s stock market would stabilise “at any moment”.

Some tech stocks steadied with Alibaba, the ecommerce group founded by billionaire Jack Ma, and delivery company Meituan little changed on Wednesday after diving in the previous session.

Traders said any gains on Wednesday in Hong Kong came from short covering, which is when investors that have bet on a stock falling buy back shares to close their trades.

“You can see this contamination of fear and the sell-off of China is domestic as well as international,” said Andy Maynard, a trader at China Renaissance, an investment bank.

Regulatory pressure from Beijing has escalated rapidly in recent weeks following ride-hailing company Didi Chuxing’s $4.4bn initial public offering in New York last month. Didi had proceeded with the listing despite private warnings from Chinese authorities not to do so.

Senior leaders in Beijing have called for an overhaul of how Chinese companies list overseas and the country’s cyber security regulator plans to review all overseas listings of groups with more than 1m users on national security grounds.

“China’s policy U-turn is tectonic,” said Richard Yetsenga, chief economist at ANZ. He said that the latest moves by Beijing to assert control over the country’s fast-growing tech sector had substantial implications for China’s slowing economic growth.

“If tech is unable to sustain China’s high rate of growth, the focus will shift back to manufacturing and consumption” Yetsenga added. “But both are facing structural challenges of their own.”

Elsewhere in Asia, Japan’s Topix was down 1.2 per cent and Australia’s S&P/ASX 200 fell 0.8 per cent. Futures for the S&P 500 were down 0.3 per cent ahead of the US Federal Reserve’s policy meeting later in the day.

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