(Bloomberg) — China’s traders, company insiders and overseas investors are all fleeing the country’s stock market.Sentiment is quickly souring amid the biggest threat to Beijing’s diplomatic ties with Washington in years. Traders based beyond mainland China sold more than $2.3 billion billion of Chinese stocks Friday, one of the largest ever outflows via Hong Kong’s exchange links. Some of China’s controlling tech shareholders are getting out as soon as they can.The CSI 300 Index fell 4.4% at the close, while the ChiNext Index dropped 6.1%, the most since Feb. 3. Losses accelerated in the afternoon after the Chinese foreign ministry said it ordered the U.S. to close its consulate in the southwestern city of Chengdu. The Trump administration earlier this week ordered the closure of a Chinese consulate in Houston.The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”China’s yuan fell as much as 0.28% to 7.0238 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 5 basis points to 2.86%, the lowest since July 1.Overseas investors sold 16.4 billion yuan of China stocks Friday, the most since a record 17.4 billion yuan was dumped on July 14. Turnover rose to 1.3 trillion yuan, the 17th session over the 1 trillion yuan mark.Even after today’s losses, the CSI 300 is up 10% for the year, among the best performances among global benchmarks. Sun Jianbo, president of China Vision Capital in Beijing, said he took advantage of the selling to raise the portion of equities in his fund’s total assets to 90% from 70%.“We’ve been cutting stocks for days and locked in profits at high levels already so we had enough ammunition in the armory,” he said. “We can’t predict what’s happening next on macro events so we just focus on firms’ growth potential over the next three years.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.