The tech sector was once again at the forefront of losses, with the Hang Seng Tech Index closing 5.2% lower in Hong Kong. The broader Hang Seng Index as well as China’s benchmark CSI 300 Index each slumped about 3%.

China’s markets are confronting multiple challenges at home and abroad, causing investors to sell stocks again despite mid-March vows from authorities to support the economy and the battered property and tech sectors. Record virus infections in Shanghai, a higher-than-expected jump in factory gate prices, concerns about tech regulations and surging U.S. yields all combined to trigger Monday’s losses.

China’s market regulator gave window guidance to some big mutual fund houses to refrain from net selling A-shares on Monday, according to people familiar with the matter. Still, the CSI 300 closed at its lowest since March 15 as foreign investors sold 5.8 billion yuan ($910 million) of local shares -- the most in three weeks -- according to data compiled by Bloomberg.

Recovery at Risk

Local equities rebounded from a historic rout in mid-March, as top officials made a sweeping set of promises from ending the crackdown on tech to supporting overseas listings. A majority of fund managers and analysts surveyed by Bloomberg at the end of last month said they plan to add to stock holdings, on bets the bottom has already passed, or is nearing.  

That investor optimism is being put to test as lockdowns in Chinese cities threaten business operations.

An announcement by China’s electric vehicle maker Nio Inc. that it halted car production, citing disruption from lockdowns, drove metals and battery stocks lower on the CSI 300 Monday. Battery giant Contemporary Amperex Technology Co. and Tianqi Lithium Corp. plunged 7.3% and 10%, respectively.

“The recent recovery rally in China’s equities is at risk from a protracted period of lower consumer spending on services from lockdowns that undermines housing sales,” said Stephen Innes, managing partner at SPI Asset Management.

A Bloomberg Intelligence gauge of developers lost more than 4% on Monday on concerns over the outbreak on sales and rental income. China’s smaller, tech-focused ChiNext Index slumped 4.2% to the lowest since July 2020.

On a positive note, data released Monday showed China’s credit expanded faster than expected in March as economic activity resumed after the Lunar New Year holidays and bond sales accelerated. That suggests looser monetary policy stance has been flowing through to the economy, with analysts expecting more easing to come.