(Bloomberg) — China’s equity benchmark slid into a bear market while the yuan tumbled the most in seven months, as the Federal Reserve’s hawkish comments added to investor concerns over the nation’s regulatory headwinds.

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The CSI 300 Index closed 2% lower on Thursday, taking losses from a peak in February to more than 20%. The drop came despite many strategists turning more positive on Chinese stocks, betting the country’s monetary easing will benefit its equities. The yuan fell as much as 0.7%, the most since June.

The index was among the few global stock gauges to be spared from plunging into a bear market during the pandemic, but has been caught up in a broad selloff that’s intensified in recent days. With Chinese markets shut next week to celebrate the Lunar New Year, traders may also be rushing to close positions to avoid uncertainties.

Read More: Don’t Expect Holiday Shelter for Chinese Markets, History Shows

Overseas investors sold 14.6 billion yuan ($2.3 billion) of mainland shares via trading links on Thursday, the most since July 2020, according to Bloomberg-compiled data.

Chinese equities listed in Hong Kong were also hammered. The Hang Seng Tech Index dropped 3.8%, while the Hang Seng China Enterprises Index lost 2.6%.

While an increasing number of Wall Street banks are touting China as an alternative investment destination as the Fed tightens, such calls have yet to lift the stock market out of the woods as regulatory uncertainties linger and the economy slows.

The CSI 300 Index entered bear territory even as Beijing tries to maintain stability in its financial markets ahead of the annual Spring Festival and the Winter Olympics.

Story continues

A string of reports from China’s state-backed media this week called on investors not to panic as the nation’s equities will show resilience thanks to looser monetary policy. As if to respond, a handful of large China onshore funds announced plans on Thursday to buy up their own equity-focused products.

“Even though domestic A-shares are holding up relatively better than others, investors may be offloading them before the long Chinese New Year holiday taking cues from the Fed-driven volatility,” said Marvin Chen, a strategist at Bloomberg Intelligence. He expected the situation to stabilize after the holidays as liquidity conditions improve.

The last time the CSI 300 Index entered a bear market was in 2018, when investor concerns about China’s trade war with the U.S. took a toll on equities.

The People’s Bank of China has pledged to offer support for the slowing economy, with policymakers cutting key interest rates in recent weeks. The divergence in monetary policy paths between the U.S. and China has been a key factor behind bullish calls on the Asian nation’s equities.

“Within Asia, if you just follow policy, China is definitely the place to be,” Mixo Das, Asia equity strategist at JPMorgan Chase & Co. said in a interview on Bloomberg television. The investment bank had upgraded China equities to overweight earlier this month.

(Adds yuan’s move and updates market prices)

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