Relentless Selloff in Chinese Tech Stocks Amid Virus Outbreak and Regulatory Uncertainties

Chinese tech stocks in Hong Kong sees further selloff following a full-scale selloff in Shenzen adding to further worries for the sector while it suffered extended regulatory risks from both home and abroad last week.

The Hang Seng Tech Index plunged as much as 7.55% while the the Golden Dragon Index, which tracks American depository receipts of Chinese firms, plunged 10% on two consecutive days last week — something that’s never happened before in its 22-year history.

Tech stocks in China came under heavy regulatory uncertainties last week as The U.S. Securities and Exchange Commission last week named its first batch of Chinese stocks as part of a crackdown on foreign firms that refuse to open their books to U.S. regulators, intensifying worries of delisting risks.

Besides, Beijing keep up its pressure on tech companies with Didi Global Inc. has suspended suspended preparations for its planned Hong Kong listing after failing to meet Beijing’s regulatory demands.

“Rationally speaking, Chinese ADR will not be uninvestable, as ADR can convert to HK lines for trading even with delisting,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd.

“So now more of panic selling. But sadly the sentiment is hard to change in the short term.”

China’s benchmark CSI 300 index fell as much a 1.9% on Monday, having ended last week with a 4.2% loss in the worst performance since 2008 during the National People’s Congress.

Goldman Sachs Group Inc. strategists toned down their optimism slightly on China stocks, slashing their valuation estimates.

“We stay overweight China on well-anchored growth expectations/targets, easing policy, depressed valuations/sentiment, and low investor positioning,” but lower our valuation target from 14.5 times to 12 times on changes in the global macro environment and higher geopolitical risks, strategists including Kinger Lau wrote in note dated Monday.