China Rout Accelerates in U.S. as ETFs Plunge Amid Growth Woes

  • Declines in A-Share ETFs exceed drop in Shanghai Composite
  • Bloomberg gauge of China ADRs plunge by most since August

The largest exchange-traded funds tracking yuan-denominated equities fell the most in four months as the rout in Chinese equities sparked by a bigger-than-forecast manufacturing slowdown accelerated in New York trading.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF tumbled 8.5 percent to $25.60 on Monday, while the Market Vectors ChinaAMC A-Share ETF retreated 8.9 percent to $40.17. The declines were the biggest since Aug. 24 and exceeded a 7 percent drop earlier in the day on the CSI 300 Index before a trading halt. The ETF selloff may indicate that investors expect further weakness in the A-share market, according to Emma Dinsmore, chief executive officer of R-Squared Macro Management.

“The outlook for Chinese equities is fairly bearish, similarly for the yuan,” Dinsmore said Monday by phone from Birmingham, Alabama. “Both have significant headwinds. The major underlining fear is that China can’t control the pace of its slow down.”

Not Normal

The selling was the worst since a mainland rout in August that wiped out $5 trillion in market value. Trading of stocks, bonds and options were halted in China after the retreat in the CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen. Investors exited the market after data showed Chinese manufacturing contracted for a fifth straight month.

The stock trading halt on Monday won’t become the “norm” as the CSI 300 Index includes blue chip stocks with liquidity and low valuations that won’t “very often” trigger the “circuit breaker” mechanism, China’s state-run Xinhua News Agency reported, citing unidentified market participants.

A Bloomberg gauge of the most-traded Chinese companies listed in the U.S. sank 4.6 percent, also the most since Aug. 24. American depositary receipts of online tourism site Qunar Cayman Islands Ltd. led the decline, plunging a record 17 percent to $43.96 after founder Chenchao Zhuang left his position as chief executive officer. The company merged with Ctrip.com International Ltd. in October through a share swap.

There is also some “nervousness” about the end of the ban on short sales and initial public offerings which the government lifted late last year, according to Michael Wang, a strategist at hedge fund Amiya Capital in London. Futures on the FTSE China A50 Index fell 5.7 percent to 10,101.04.

Government Support

In New York, the pessimism surrounding Chinese equities has infected even its most successful Internet companies. JD.com Inc., China’s second-biggest online retailer, slumped by a record 8.5 percent to $29.53. Alibaba Group Holding Ltd. dropped 5.6 percent to $76.69.

The yuan fell the most since Aug. 12 to a five-year low of 6.6293 in offshore trading.

The Chinese government may step in to prop up the market if share prices fall further, said Wayne Lin, a New York-based money manager at QS Investors LLC who invests in Chinese stocks.

When the Shanghai gauge tumbled more than 40 percent from mid-June through its August low, policy makers released a series of stimulus measures including interest rate cuts and calling off IPO approvals.

“Ultimately the government does want stability and the equity market to evolve, so they will do something to make sure the market more stable.,” said Lin. “But I don’t think they’ll do it right out of the gate. When I think about August, the selloff was far more severe.”

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