China's equity selloff worst since October 9: Here's the Texas connection

Aside of the call for divesting funds from China, results from local tech giants Baidu and PDD also weighed on the sentiment.

China's benchmark equity index CSI 300 fell sharply by 3% to clock its worst slump since October 9, spooked by a statement from the Office of the Texas Governor, who called on state agencies to divest from risky investments originating from China.

The Governor of Texas, Greg Abbott ordered state agencies to 'fully divest' from China as soon as possible, and avoid exposure to the Chinese Communist Party (CCP). A statement from the Office of the Texas Governor blamed Chinese Communist Party (CCP)'s 'belligerent actions' have 'increased instability and financial risk' to the Texas' investments in China.

"...all investments of state funds in China must be evaluated and immediately addressed. To further this goal, I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity," the statement said, asking state entities to divest as soon as possible.

During the US Presidential elections, Texas saw Republican Party extend their decades-long grip on the state by winning important seats with a wide margin, including Donald Trump, Ted Cruz, among others.

This is not the first time that Texas has echoed concerns around Chinese investments. In 2023, Governor Abbott had encouraged Vanguard to create emerging market funds isolating the investments from risks posed by China. Earlier this year, Abbott had also urged the University of Texas Investment Management Company (UTIMCO) to divest from China.

Aside of the call for divesting funds from China, results from local tech giants Baidu and PDD also weighed on the sentiment. Baidu runs China's largest search engine and depends on advertising for over half of its revenue. The company clocked its worst fall in revenue in two years, given its sensitivity to a slowing economy and consumption.

Add to that, the concerns over an impending tariff barrier on Chinese exports by US President-elect Donald Trump, and continued strength in US Dollar is making foreign investors in China jittery.

Not just equities, foreign investors have also been offloading Chinese bonds for two months in a row as the trade unwinds. Some investors have also turned unsure about the ability of thre CCP to sustain the stimulus push in 2025, triggering the selloff.