The Nasdaq Golden Dragon China Index, which tracks 98 of the largest Chinese companies listed in the US, collapsed on Tuesday after Chinese regulators issued a series of draft rules designed to prevent unfair online competition.
Chinese stocks listed in the US face another wave of selling pressure as Beijing authorities step up crackdown on some of the country’s largest companies.
The Nasdaq Golden Dragon China Index – which includes 98 of the largest US-listed companies in China – slumped as much as 4.5% on Tuesday after China’s state market regulator released a series of draft rules designed to prevent unfair online competition.
The announcement came just hours after the state-sponsored People’s Daily published a comment that China would scrutinize the entertainment sector and so-called “idol culture”.
The moves are the latest in a series of announcements that have shattered investor confidence as Chinese regulators seek to contain the country’s tech titans.
“This definitely makes for a challenging investment environment going forward,” said Michael O’Rourke, chief market strategist at JonesTrading. “Investors need to be really careful,” he added.
The chairman of the US Securities and Exchange Commission, Gary Gensler, issued his most direct warning to date about the risks of investing in Chinese companies on Monday. He urged SEC officials to “take a break” from approving initial public offerings by letterbox companies that Chinese companies use to list stocks in the US
Tuesday’s slump is being led by tech giants like Alibaba Group Holding Ltd., JD.com Inc., and Baidu Inc., all of which are at least 3% lower.
The sell-off adds to the brutal six months for Chinese stocks in the US. The Nasdaq Golden Dragon China Index has plummeted more than 50% since its record high in February. Along the way, some of the world’s most prolific investors have begun to leave the ship.
Cathie Wood’s flagship Ark Innovation ETF has reduced its exposure to stocks in companies in the world’s second largest economy to zero after they reached 8% of its assets in February.
Meanwhile, Paul Marshall, co-founder of $ 59 billion hedge fund Marshall Wace, said in a letter to clients last week that people could argue that US-listed Chinese stocks have become “non-investable.”
Other large funds have joined the exodus, with SEC filings showing Soros Fund Management, D1 Capital Partners and Soroban Capital Partners each sold some or all of their holdings of American depository receipts from Chinese companies in the second quarter.