China Markets Slide as Yuan Falls Past 6.9, Tencent Drags Stocks

(Bloomberg) -- China’s equities and currency slid, with the yuan weakening past 6.9 a dollar for the first time since May 2017 and losses in tech stocks spiraling into a broad selloff.

The Hang Seng China Enterprises Index fell 2 percent at the close for its fourth day of losses. Tencent Holdings Ltd. rattled equities after surprising investors with its first profit drop in at least a decade, sending MSCI’s emerging-market benchmark down 1.3 percent. Shanghai’s benchmark stock gauge and the small-cap ChiNext Index also retreated at least 2 percent.

"It’s really just a lack of confidence forcing the selloff in the yuan, and of course there’s the double whammy coming from the U.S.-China trade tension and the latest negative news from Turkey," said Jingyi Pan, Singapore-based market strategist at IG Asia Pte. "The Chinese market is coming under a little bit more stress and a lot has to do with the currency. Whether that will carry on -- the market has to see someone step in to do something about it. At this point, we don’t see it happening yet."

China’s currency’s has slumped about 7.6 percent over the past three months as the worst performer in Asia amid China’s trade dispute with the U.S. and a slowing economy. Investors got a reminder of the economic troubles China faces on Tuesday, as data showed factory output, retail sales and credit creation in July all trailed estimates.

Tencent fell 3.6 percent to extend its four-day slump to nearly 10 percent. The mood on the Chinese company has soured amid concern over its revenue prospects, with Goldman Sachs Group Inc. becoming the latest to cut its price target, though analysts still overwhelmingly rate the stock a buy.

In a fresh blow, ordered Tencent to shut down Monster Hunter: World from its PC downloads service just days after its debut, while the country’s watchdogs China are said to have frozen approval of new game licenses. That contributed to a 19 percent drop in mobile gaming revenue from the first quarter.

The options market is implying a share price move of 5.1 percent in either direction after Tencent’s earnings report, according to data compiled by Bloomberg. That would be its biggest post-results reaction since August 2015, when the stock rallied 6.8 percent.

China Markets Slide as Yuan Falls Past 6.9, Tencent Drags Stocks

Hong Kong’s stocks have also been hit, as the Hang Seng Index lost 1.6 percent for its lowest close since August last year. The city’s currency has also fallen to the weak end of its trading band, prompting the city’s monetary authority to defend the peg to the dollar by buying HK$2.159 billion ($275 million) during New York trading hours Tuesday. It was the first such intervention in three months.

Howard Lee, deputy chief executive of the Hong Kong Monetary Authority, said that the city can cope with market volatility and challenges of capital outflows. The local currency remained at the weak end of the band at 7.85 versus the greenback.

Few equities escaped unscathed. Health-care stocks -- the only sub-gauge of the CSI 300 Index to be higher year-to-date -- led declines on the mainland, while Macau casinos were among the poorest performers in Hong Kong. Sunny Optical Technology Group Co. fell 0.9 percent a day after a record 24 percent loss.

“Sunny’s earnings disappointed investors earlier and triggered concerns over the first half-results of the whole tech and Internet sector,” said CMB International Securities Ltd. strategist Daniel So. “Obviously the focus is on Tencent results today.”

Pork producer WH Group Ltd. was a rare bright spot on the Hang Seng Index, climbing 8.2 percent after its results and a rating upgrade by Credit Suisse.

The yuan weakened 0.35 percent to 6.9067 per dollar as of 4:35 p.m. in Shanghai, while the offshore rate fell 0.25 percent. The Bloomberg Dollar Spot Index rose for a fifth session. China’s 10-year sovereign bonds fell, with the yield rising 3 basis points to 3.59 percent.

“Market participants are testing the central bank’s tolerance of yuan weakness again” as the dollar rallies, said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. “The offshore yuan perhaps will keep weakening, but investors will be more cautious in pushing the onshore rate to 7 per dollar on concerns of central bank intervention.”

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