China Stocks Slip Again

BEIJING -- With Asian markets still reeling from recent declines, China stocks weakened again Tuesday but Hong Kong shares managed a small gain.

Monday's session saw China names swimming in red as a wave of panic selling took down emerging markets plays en masse. Investors bailed out of commodity stocks such as Yazhou Coal (YZC Quote) and Petrochina (PTR Quote).

Refiners such as China Petroleum & Chemical (SNP Quote) bucked the downward trend after wire services reported China plans to increase retail gasoline and diesel prices by about 500 yuan per ton this week

China tech was broadly down, including Sohu (SOHU Quote), off 7% to $25.15, and Ctrip (CTRP Quote), losing 6.2% to $45.59.

Tuesday the Shanghai Composite Index closed down 3.2% to 1604, while Hong Kong's Hang Seng index managed to eke out a tiny bit of green, up 0.4% to 15872.

The scale of the recent selloff in Asia markets is "kind of unprecedented in the last couple of years. We've been on a one-way up trend," said one regional tech analyst who has been fairly negative on most emerging markets stocks since last summer. "I think valuations have been too high and didn't really reflect the risk; investors were giving the names too much credit for future growth."

Even relatively blue-chip names weren't immune. Take China Mobile (CHL Quote), which lost 6.6% to $25.83. "China Mobile is an extremely widely-held stock by investors that are not Asia-dedicated money," said the analyst, who declined to be named.

Over the past nine months, hedge funds have been piling into China names looking to make quick profits. "They've recently poured in looking for a liquid non-cyclical proxies [for emerging markets growth]. As a result many stocks were re-rated upwards, and now all the benchmark stocks are blowing up."

China investors could take some (shallow) comfort in the notion that they weren't the only ones hurting. As UBS chief Asia Pacific economist Jonathan Anderson put it in a Tuesday note, "This is not an Asian sell-off. Rather, this is a global retrenchment -- and stock markets in EMEA [Europe, the Middle East and Africa] and LATAM [Latin America] got hit a lot harder than most Asian indices."