Major U.S. stock indices had a disappointing week after setting new highs just before Labor Day, but outside our borders, the Emerging Markets Index has been making lower highs and lower lows for quite some time. It’s been in a downtrend for most of 2021:

China is largely to blame, as Chinese stocks make up the majority of the index’s composition. This year, and especially this summer, we’ve seen a surge in regulatory actions by the Chinese government against large technology companies. From data protection, to private tutoring, to public offerings, to video games, the PRC has seemingly been on the warpath. Chinese technology stocks have felt the pain – the FTSE China Technology Index has fallen 40% from its peak earlier this year.

It’s hard to imagine sentiment being much worse on Chinese stocks than it is now. It seems the government targets a new industry each day, a COVID resurgence has pushed some purchasing managers surveys into contraction territory, and an SEC promise to delist certain Chinese stocks from American exchanges looms overhead. That said, the magnitude of decline in Chinese tech stocks has nearly matched the 2018 trade-war-aided selloff, and the 2018 peak is a logical place to find support.

In addition, the bloodbath in tech has failed to bleed over into other sectors. Both the Shanghai and Shenzhen Composites broke out on Friday, each closing at the highest level since 2015 in U.S. Dollar terms:

Good or bad, China stocks bear watching in the coming weeks and months.

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