China Rout Accelerates in U.S. Trading Amid Record ETF Selloff

Updated on
  • Deutsche Bank's A-share ETF drops 14% following mainland rout
  • Web firms from Baidu to Weibo sink as Alibaba breaks IPO level

The largest U.S.-listed exchange-traded funds tracking yuan-denominated equities fell the most on record as China’s worst stock selloff since 2007 accelerated in New York trading amid questions over the government’s ability to support a flagging economy.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF tumbled 14 percent to a eight-month low of $30.11 on Monday, while the Market Vectors ChinaAMC A-Share ETF retreated 15 percent. The declines exceeded an 8.5 percent drop earlier in the trading day on the Shanghai Composite where more than 800 stocks fell by the daily 10 percent limit. The ETF selloff may indicate investors expect further weakness in the A-share market, according to Ankur Patel of R-Squared Macro Management.

“In mainland China, the stocks would have sold off more had there not been a daily 10 percent limit in place,” Patel, chief investment officer at the Birmingham, Alabama-based firm, said by phone. “You may see an additional selloff from here on now if the Deutsche ETF is an indicator for that.”

A Bloomberg gauge of the most-traded Chinese companies listed in the U.S. sank 5.7 percent to trade at a 17-month low as Internet firms from Baidu Inc. to Weibo Corp. plunged.

Fear Spreading

China’s unprecedented moves to shore up its $6 trillion stock market have done little to stop investors from dumping shares as fear spreads across global markets that the slowdown in the world’s second-largest economy is worse than anticipated. The central bank has stopped short from further steps to revive growth after its surprise Aug. 11 yuan devaluation.

“They didn’t cut the reserve ratios and refrained from supporting the yuan, and that shows to investors around the world the Chinese are running out of room in terms of being able to support the market,” Patel said.

Investors withdrew $67 million from Deutsche Bank AG’s A-share ETF last week, the biggest outflow in five weeks, according to data compiled by Bloomberg. The fund has $631 million in assets and its market capitalization has been cut in half this year to $465 million.

A preliminary gauge for Chinese manufacturing in August fell to the lowest in more than six years, according to data released last week by Caixin Media and Markit Economics. The reading of 47.1, indicating a contraction, fell short of analysts’ median estimate of 48.2.

In New York, the pessimism surrounding Chinese equities has infected even its most successful Internet companies. Alibaba Group Holding Ltd.’s American depositary receipts slid 3.5 percent to $65.80, dropping below the initial public offering price of $68. Baidu, the largest web search engine, plunged 7.7 percent to $141.08, the lowest in almost two years. Weibo, the Twitter-like social media operator, tumbled 20 percent to $9.67 in the biggest decline since its U.S. debut.

The Bloomberg China-U.S. Index for ADRs slid to 97.66, the lowest since March 2014. The iShares China Large-Cap ETF tracking companies listed in Hong Kong slid 6.4 percent to $34.23, the lowest since March 2014.