(Bloomberg) -- The list of reasons to sell Chinese equities just keeps getting longer.
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Stocks took another dive on Tuesday as traders braced for geopolitical risks to intensify with US House Speaker Nancy Pelosi’s planned visit to Taiwan. Beijing regards the island as part of its territory and has promised “grave consequences” for the trip. The tensions may exacerbate outflows from China after global funds sold about 2.3 billion yuan ($342 million) of local shares via the exchange links on Tuesday.
A gauge of Hong Kong-listed Chinese stocks slid 2.5%, taking losses for the year to about 19% -- one of the world’s worst performers among major equity indexes tracked by Bloomberg. The benchmark CSI 300 Index closed down 2%, its biggest loss since late May.
Tensions with the US are the latest headwind for Chinese equities, which are already reeling from the impact of slowing growth, a deepening property sector crisis and tech crackdowns. Pelosi’s planned trip threatens to complicate Sino-American ties, which have already been hurt by a row over trade and a potential delisting of Chinese firms in the US.
“There is a lot of nervousness in the market about where things will go from here, and fear of an actual hot war,” said Zhang Fushen, senior analyst at Shanghai PD Fortune Asset Management LLP. “My positioning now is light and I have the flexibility to build out my position if things escalate and stocks trade lower for a period.”
Pelosi is expected to arrive in Taiwan Tuesday at 10:20 p.m. local time via private plane at Songshan Airport, the Liberty Times reported, without specifying how it got the information.
The White House sought to dial back the rising tensions with China, insisting the trip doesn’t signal a change in US posture toward Taiwan and urging Beijing to refrain from an aggressive response.
“If she does make the visit, this could be a watershed marking a new form of escalation in US-China relations,” said Li Weiqing, partner at JH Investment Management Co. “While previously the tensions were economic, this may be the first time in years that there is direct military contact,” he said, while adding that the market impact may be short-lived.
READ: Taiwan Stocks Slide as Rising US-China Tensions Dent Sentiment
The worsening standoff comes just as Chinese equities are grappling with a deepening crisis in the housing sector. Hundreds of thousands of homebuyers have refused to pay mortgages on stalled projects and China Real Estate Information Corp. estimates that new home sales in 30 Chinese key cities may have fallen 33% on year.
To make matters worse, the nation’s official economic growth target of around 5.5% is looking increasingly out of reach. Top leaders told government officials last week that this year’s growth estimate should serve as guidance rather than a hard target that must be hit, according to people familiar with the matter.
China should achieve “the best outcome” possible for economic growth this year while sticking to a strict Covid Zero policy, the Politburo, the nation’s top leadership, said after a meeting last week.
“The concern about the economy is also real, you don’t even have to read between the lines of the Politburo readout to realize that 5.5% is pretty much out of the picture,” said Shanghai PD’s Zhang.
Other Chinese stock gauges also fell on Tuesday, fueling a broad decline in Asian equities. The Shanghai Composite and ChiNext Index dropped at least 2% each.
Money managers had withdrawn $327 million from exchange-traded funds that invest in Chinese shares last week.
“Escalating geopolitical tensions increase risks for the region,” said Marvin Chen, a strategist at Bloomberg Intelligence. “China equities will likely see risk premiums rise and volatility may increase in the near term depending on China’s reaction.”
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