What happened
China's topsy-turvy stock market seems to have gotten more turvy again. In Friday midmorning trading, 10:40 a.m. EDT, shares of for-profit Chinese educator Gaotu Techedu (GOTU 3.18%) are down 7.1%, followed by declines of 9.6% and 9.9%, respectively, for online streamers iQIYI (IQ 5.38%) and Bilibili (BILI 7.61%).
And you may be to blame for it.
Image source: Getty Images.
So what
By "you," of course, I'm referring to foreign investors in U.S.-listed Chinese stocks.
As The Wall Street Journal reported yesterday, "Foreign investors have unloaded $9.5 billion of mainland Chinese stocks this month, reflecting a reassessment of geopolitical risk following the financial isolation of Russia." Additionally, says the newspaper, "U.S. delisting concerns and China's worsening Covid-19 outbreaks" have shaken investor confidence in Chinese stocks.
Crunching Hong Kong Stock Connect data through March 24, the WSJ described this recent selling spree as "on pace to be the second-largest monthly drawdown since [Stock Connect began operating] in 2014," with selling reaching its peak on March 14 and 15.
And yes, it's true that on March 16, China made moves to stem the selling and encourage stock buybacks that could lift the prices of Chinese equities. Last week, that helped to boost confidence in (and prices of) Chinese stocks for a time. But after reviving briefly, the Journal says that "more moderate outflows [have already] resumed" again.
Now what
So...down, up, down -- which way should investors expect Chinese stock markets to move next? That's very hard to say. Quoting Nomura joint head of Asia-Pacific equity research Jim McCafferty, the Journal says that "some global investors just want nothing to do with" China at this point -- and with the continuing threat of a mass delisting of Chinese stocks from U.S. stock exchanges looming over their heads, who can blame them?
Such a delisting, if it happens, probably won't take place for another several months or even years. But if and when it does happen, investors who own Chinese stocks -- well, they won't actually be deprived of their shares, but they may find it much more complicated to trade them, and they may be forced to sell on foreign markets where demand for the shares is lower, resulting in lower stock prices.
When you consider that neither iQIYI nor Bilibili has ever earned a profit, and that Gaotu Techedu, although briefly profitable in 2018 and 2019, has lost money ever since, I honestly don't know why investors would want to take that risk just to own these specific Chinese stocks.
And today it kind of looks as if they don't want to take that risk anymore.
