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SHANGHAI — Chinese stocks fell to 21-month lows on Tuesday as mainland companies listed in Hong Kong hit 2008 lows as soaring COVID-19 cases threatened prospects for the world’s second-largest economy and the central bank dashed expectations of a cut in a key rate.

The Ukraine crisis also weighed on sentiment, reigniting worries about widening differences between Beijing and Washington as the United States raised concerns about China’s alignment with Russia, and prompting investors global markets to dump overseas-listed Chinese stocks, analysts said.

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The Chinese yuan weakened against the dollar for a fourth consecutive session to hit a three-month low, amid signs of capital outflows amid concerns over the economic slowdown and growing geopolitical risks facing Beijing.

The blue-chip CSI300 index fell 4.6% to 3,983.81, the lowest since June 15, 2020, while the Shanghai Composite index lost 5% to 3,063.97.

The falls were exacerbated by strong selling by foreign investors through China’s Stock Connect program. Data from Refinitiv showed outflows for the seventh consecutive session, totaling 13.3 billion yuan ($2.08 billion) on the day.,

The People’s Bank of China (PBOC) said it would keep its one-year medium-term lending rate unchanged at 2.85% from the previous operation, defying expectations of a cut.

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The stock sell-off came despite data showing China’s economy rebounded in the first two months of 2022, with key indicators all beating analysts’ expectations.

The data “shows that supportive government policies have started to help the economy,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “But the macro outlook for the next few months remains challenging. I’m surprised the PBOC didn’t cut the MLF interest rate today.

The sharp rise in daily COVID infections in mainland China added to market gloom, with new symptomatic cases on Tuesday more than doubling from a day earlier to a two-year high.

South China’s technology hub Shenzhen has suspended public transport, including buses and subways, prompting manufacturers such as Apple suppliers Foxconn and Unmicron Technology Corp to halt operations. Shanghai’s financial center has locked down some housing and offices.

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“China’s economy could be hit hard again,” Nomura analysts said in a note. “With the pandemic worsening and Beijing’s resolve to maintain its zero-COVID strategy, we believe China’s GDP growth target of ‘around 5.5%’ this year is becoming increasingly unrealistic. .”

US National Security Adviser Jake Sullivan raised concerns about China’s alignment with Russia on Monday during a seven-hour meeting with Chinese diplomat Yang Jiechi. Washington has warned of isolation and sanctions for Beijing if it helps Moscow in its invasion of Ukraine.

The Hang Seng index fell 5.7% to 18,415.08, the lowest since Feb. 12, 2016. China’s corporate index fell 6.6% to 6,123.94, the lowest since February 12, 2016. October 29, 2008.

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The benchmark Hang Seng Index marked its worst day since July 2015 on the busiest trading day of a decade.

“There is too much going on in Hong Kong. From what I can tell, the atmosphere there is disastrous. The exodus of expatriates increases every day. Any excuse to sell is the name of the game,” Jim Walker, chief economist at Aletheia Capital, told the Reuters Global Markets Forum on Tuesday.

JPMorgan Chase & Co on Monday downgraded 28 Chinese stocks listed in the United States and Hong Kong, sending the Hong Kong-listed tech giants down more than 8% on Tuesday.

“We find China’s internet to be unattractive over a 6-12 month horizon with an unpredictable stock price outlook, depending on market perception of China’s geopolitical risks, macroeconomic recovery and Internet regulatory risk,” JPMorgan Chase & Co said in a note.

The Hang Seng Tech index has fallen about 22% since last Friday as the U.S. Securities Exchange Commission identified Chinese companies that will be delisted if they do not provide access to audit documents.

“As the Russian-Ukrainian conflict continues, we believe global investors are growing increasingly concerned about geopolitical risks to China as more countries and companies impose sanctions on Russia,” he said. said JPMorgan Chase & Co.

(Reporting by Shanghai Newsroom; Editing by Sherry Jacob-Phillips, Sam Holmes, Muralikumar Anantharaman and Subhranshu Sahu)



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