This week isn’t off to a good start for many Chinese stocks. A Covid-19 outbreak in Shenzhen, a major tech hub, is prompting lockdowns. News last week that five Chinese companies had failed to meet audit requirements and could therefore be delisted is also weighing on equities.
Chinese Stocks News: What’s Happening
With so much negative market momentum, it’s not surprising that many prominent Chinese companies would be plunging today.
Baidu (NASDAQ:BIDU) is down 5% while JD.com (NASDAQ:JD) has fallen by more than 6%. On top of the more general problems, regulatory action has pushed Tencent (OTCMKTS:TCEHY) down 7% while Pinduoduo (NASDAQ:PDD) has plunged by more than 8% so far. One outlier has been DiDi Global (NYSE:DIDI), which has managed to rise just 1% today.
Why It Matters
A Covid-19 outbreak is never good news for financial markets. China is currently working hard to contain the worst wave of cases it has seen since the pandemic first began. The new wave comes at a time when other factors were already pushing stocks down across multiple sectors.
Many Chinese companies have been on alert since 2021 when the U.S. announced stricter punishments for international companies that failed to meet audit requirements. This news sent many Chinese stocks plunging as delisting fears spread quickly. Months later, the U.S. Securities and Exchange Commission (SEC) has shown it won’t be backing down on these policies. Bloomberg reports that panic selling of Chinese stocks has already set in on Wall Street.
It’s also far from reassuring to see a city like Shenzhen face a shut down. This will mean further supply chain disruptions at a time when manufacturers were already dealing with delays. It doesn’t help that Tencent may be facing record fines for anti-money-laundering violations. The company’s WeChat Pay subsidiary is accused of allowing the transfer of funds for “illicit purposes” including gambling.
What It Means
As InvestorPlace Assistant Financial News Writer Eddie Pan reports, “a host of potential macroeconomic risks” loom as investors ponder the uncertain future of many Chinese stocks. Regulatory fears combined with the threat of further lockdowns make for an unsettling industry landscape.
When all major Chinese stocks news is grim, it is hard to regard the financial landscape with much optimism. It may make sense for investors to proceed with caution and to wait out the storm.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.