Tech meltdown: China's $1.9-trillion stock rout has no end in sight

The downward spiral of Chinese tech stocks shows no signs of abating, with alarms now ringing in the options market. Even after a drop in market value of almost $2 trillion, investors are seeking hedges against further losses in the Hang Seng Tech Index. Bearish options on the benchmark are trading near a record premium above bullish calls as the gauge plunged this week, data compiled by Bloomberg shows.

The tech index has plunged 61 per cent from its peak last year. The Nasdaq Golden Dragon China Index of US-traded stocks has fared even worse, down 68 per cent, and with another bad day or two, the peak-to-trough decline could surpass its 72 per cent crash in the 2008 global financial crisis. But for many investors, overwhelmed by renewed regulatory and earnings shocks and Russia’s invasion of Ukraine, the shares aren’t cheap enough yet. 

“The market is very panicky,” said Paul Pang at Pegasus Fund Managers, who has sold almost all his stake in Alibaba Group. “Sanctions against China are not impossible, if China refuses to take sides on the war in Ukraine. Tech shares are among those risky names exposed in the crossfires in the rising Sino-US tensions.” 

Chinese tech shares are particularly vulnerable in an environment where investors are shunning risk. On Thursday, Chinese stocks in the US suffered their biggest selloff since 2008 after US regulators identified five companies that could be subject to delisting for failing to comply with auditing requirements. 

Moreover, fear of a fresh regulatory crackdown by Beijing has escalated lately as policy makers proposed more curbs on online games. Earnings results, so far, have been unable to ease any worry about the growth outlook. 

The Hang Seng Tech Index is the one of the world’s worst-performing tech gauges since the war in Ukraine broke out and has dropped 17 per cent in March, on course for its biggest monthly drop ever.