Panic Selling Grips Chinese Stocks After U.S. Tensions Worsen

(Bloomberg) — China’s traders, company insiders and foreign investors are all fleeing the country’s stock market.

Sentiment is quickly souring amid the biggest threat to Beijing’s diplomatic ties with Washington in years. Overseas traders sold more than $2.3 billion worth of Chinese stocks through exchange links with Hong Kong on Friday, one of the largest amounts on record. Some of China’s tech shareholders are getting out as soon as they can.

The CSI 300 Index fell as much as 5%, while the ChiNext Index fell 6.6%. Losses accelerated in the afternoon after the Chinese foreign ministry said it ordered the U.S. to close its consulate in the southwestern city of Chengdu. The Trump administration had earlier this week ordered the closure of a Chinese consulate in Houston.

The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.

“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”

AviChina Industry & Technology Co., which makes aviation products for the military, surged as much as 10% in Hong Kong. Avic Shenyang Aircraft Co. jumped as much as 9.7% to a record in Shanghai.

China’s yuan fell as much as 0.28% to 7.0235 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 3 basis points to 2.88%.

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