(Bloomberg) -- Trump’s trade war was bad, though not fatal. For Chinese stocks, Tuesday’s technology tumble poses a graver threat.
Just three tech companies -- Tencent, Alibaba and Sunny Optical -- account for half of the MSCI China Index’s 4.6 percent gain this year through Tuesday, and all three derive the vast bulk of their revenues domestically. For members of MSCI’s Chinese benchmark as a whole, the U.S. accounts for just 5 percent of sales, according to Citigroup Inc. Where the gauge is vulnerable is its reliance on tech companies to propel gains.
Almost by themselves, Tencent Holdings Ltd., Alibaba Group Holding Ltd., Baidu Inc. and Sunny Optical Technology Group Co. have helped drive the measure up 70 percent in the past two years, more than double the return of the S&P 500. Like the U.S., valuations are looking stretched.
Their outsized impact was in full display on Wednesday. Tencent tumbled 4.6 percent, while Sunny Optical sank 8.1 percent in its steepest loss this year, helping drag the MSCI China down 2.3 percent. The NYSE FANG+ index, tracking the FANG block and its megacap brethren, tumbled 5.6 percent on Tuesday in the biggest rout in data going back to September 2014.
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