Mini-crash in Chinese tech stocks hides bigger picture for mainland markets

Nearly 500 stocks on the small-cap ChiNext index plunged before hitting the 10 percent lower limit. The technology-heavy index dropped 5.1 percent to close at its lowest since Jan. 16, 2015, according to FactSet. Some news outlets deemed it a "Black Monday" for Chinese stocks.

However, broader indexes containing stocks of bigger companies fared relatively better. The Shanghai composite fell 1.4 percent, marking its worst day since Dec. 12, while the CSI 300 fell 1.1 percent in its worst day since June 14. Hong Kong's Hang Seng index closed slightly higher.

The Chinese small-cap stocks' sharp decline Monday followed weeks of underperformance since April, when Chinese authorities began to force banks to rein in off-balance-sheet lending, Beddor pointed out.

The ChiNext's drop to 2015 lows "really is an indication of how seriously investors view the current financial clampdown and how vulnerable many of the firms listed on the ChiNext are to a deleveraging campaign," he said. "Small-cap ChiNext stocks usually amplify broader movements in the market because they're so highly leveraged."

The ChiNext is down 15.6 percent year to date. In contrast, the Shanghai composite is up a muted 2.4 percent, amid increased regulatory scrutiny on firms' financial practices.

Source: Bloomberg Pro Terminal

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