China Stocks Post Biggest Two-Day Drop This Year on Geopolitics, Growth Woes

(Bloomberg) — The biggest two-day slide in Chinese stocks this year suggests traders may be losing faith in the market’s rebound as they reassess inherent risks including geopolitical tensions and a fragile economy.

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The CSI 300 benchmark closed 1.2% lower to breach a key technical level, led by declines in technology and materials shares. That added to a 2% drop on Friday, when foreigners sold the most shares since late October.

Investors had been pinning their hopes on this earnings season to drive the next leg of the reopening rally, only to face new headwinds as the US ramped up pressure on Beijing’s tech ambitions. Key Chinese stock indexes have lagged global benchmarks in April, while the threat of a new Covid wave before a national holiday threatens to set back the fledgling economic recovery.

“I think at this point, investors try to see the negative in every headline,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “Concerns about further US restrictions” are weakening sentiment, he added.

READ: Chinese Leaders Highlight Economic Risks as Recovery Takes Hold

The declines pushed the CSI 300 further away from entering a bull market after failed efforts earlier this year. Foreign investors sold 11.45 billion yuan ($1.7 billion) of mainland shares via trading links with Hong Kong over the past two sessions, according to data compiled by Bloomberg.

READ: China Traders Want More Proof to Bet on Rebound: Earnings Watch

China was deemed one of the most promising investment destinations for this year, but the market has struggled to regain momentum after the reopening rally fizzled at the end of January. The latest set of data suggest the economy’s rebound is somewhat lopsided with weakness in property investment.

In another sign of the nation’s uneven recovery, one of China’s poorest and most indebted provinces is making a stronger push for state help to diffuse its financial risk.

In Hong Kong, the Hang Seng Index fell 0.6% to close below a key psychological level of 20,000. Onshore markets will close May 1-3.

“The CSI 300 has now breached below its key 200-day moving average reinforcing the ongoing profit-taking activities” due to a lack of further liquidity support from the central bank, said Kelvin Wong, senior market analyst at Oanda Asia Pacific Pte. Additionally, “traders do not want to hold open short-term positions” given the upcoming holidays, he added.