Chinese ADRs slide 3% as property slump deepens selloff

US-listed Chinese stocks slid in pre-market trading Tuesday, with Bilibili Inc. and Baidu Inc. each falling 3%, as China's deepening property slump weighed on sentiment.

"The property data reinforces the view that China's economic recovery remains uneven, and that's spilling over into broader equity sentiment," said Victor Cheung, Hong Kong equities analyst at Edgen.

Alibaba Group Holding Ltd. fell 2%, while JD.com Inc., Pinduoduo Inc., Ctrip.com International Ltd., BeiGene Ltd. and NetEase Inc. each declined 1%. The moves tracked a broader selloff in Chinese developer stocks, with a Bloomberg Intelligence gauge of property shares falling as much as 3% Tuesday to levels last seen before the government's September 2024 stimulus package. Sunac China Holdings Ltd. dropped 7.2% and Shimao Group Holdings Ltd. lost 4.4% after the National Bureau of Statistics reported that home prices in 70 cities declined at a faster pace in May, erasing gains from the stimulus-driven rebound late last year. The data marks a setback for policymakers who had introduced a raft of measures including lower mortgage rates and down payment requirements to stabilize the housing market.

The declines show the fragility of China's equity markets, where the Hang Seng Index has fallen 3% this year. Adding to the pressure, at least HK$255 billion worth of locked-up shares from IPOs and secondary offerings are set to become tradable in July, the most for any month through year-end, according to Bloomberg-compiled exchange data. Goldman Sachs Group Inc. estimates that IPO-induced lockup expiries in Hong Kong will total US$274 billion in the coming year, a record for any 12-month period. Historical precedents suggest equities typically experience moderate downward price pressure following lockup expiration, with a median decline of 4% in three months and 7% in six months after shares become tradable, Goldman analysts including Si Fu wrote in a note dated June 14.

The selloff in Chinese ADRs also tracked weakness in Hong Kong-listed technology stocks, which have lagged Asian peers this year. The Hang Seng Index has underperformed South Korea's Kospi, which surged more than 100%, and Taiwan's Taiex, which gained 57%, as doubts over Chinese firms' heavy AI spending weighed on the sector. Companies facing substantial lockup expiries in July include AI model developer MiniMax Group and Knowledge Atlas Technology JSC, also known as Zhipu, whose shares surged following their listings during Hong Kong's IPO boom late last year and early this year. The more than 60 new listings in Hong Kong this year have delivered strong post-IPO performance, rising 67% on average in the first three months after making debut, according to Goldman's note.

For investors, the combination of deteriorating property fundamentals, a looming wave of lockup expiries, and persistent weakness in Chinese technology stocks creates a challenging near-term outlook for Chinese equities. The potential selling pressure from unlocked shares may offer a buying opportunity for those bullish on long-term prospects, as higher free float should improve liquidity and enable better price discovery in quality Hong Kong listings, said Gary Tan, a portfolio manager at Allspring Global Investments. First-time share sales in Hong Kong fetched about US$5 billion in January, the highest tally for the month on record, and listings have raised nearly US$14 billion in the first three months of this year, the best quarter since 2021.

This article is for informational purposes only and does not constitute investment advice.