Stock markets in China and HK awash in losses as Trump’s surprise tweet rekindles concerns of escalating trade war

07-May-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Stock indexes tumbled in China and Hong Kong, after US President Donald Trump threatened to more than double America’s tariffs on Chinese goods, in a surprise move that rekindled concerns that the trade war between the world’s largest economies will escalate just a week before its final resolution.

The Shanghai Composite Index slid 5.6 per cent, or 171.88 points, to 2,906.46 at the close on Monday, as mainland China’s stock markets reopened after the three-day Labour Day holiday. A measure of stocks trading on the smaller Shenzhen exchange, which mainly consists of small-caps, plunged 7.4 per cent. Both gauges capped their biggest single-day losses in three years. The rout sent about 1,000 companies on the mainland’s two bourses down by the 10 per cent daily limit.

On the Hong Kong exchange, the Hang Seng Index retreated 2.9 per cent to 29,209.82, while the China Enterprise Index, which tracks the performance of Chinese companies in Hong Kong, slumped 3 per cent. Futures contracts on FTSE China A50 Index sank as much as 6.4 per cent, while China’s offshore-traded yuan contracts plunged by the most in more than three years.

China’s market woes spilled over to the rest of Asia, sinking stock indexes from Taipei to Sydney. Taiwan’s Taiex index and Australia’s S&P/ASX 200 Index dropped at least 0.8 per cent, while Singapore’s Straits Times index shed 3 per cent.

Sentiment quickly turned sour as Trump said over the week that the US would increase tariffs on $200 billion of Chinese goods to 25 per cent from 10 per cent starting Friday, complaining the trade negotiation between Washington and Beijing was progressing too slowly. He also threatened to impose a new 25 per cent duty on the remaining $325 billion of imports from the Asian nation. In response, China may delay or cancel a trip by its top negotiators to Washington for a planned talk scheduled for this week, the South China Morning Post reported, citing a source who was briefed on the latest arrangement. The two sides earlier agreed to a truce in December following a meeting between Trump and his Chinese counterpart Xi Jinping in Argentina.

“Trump’s latest threat to raise tariffs on Chinese exports to pressure Beijing to make more concessions appears to reflect [that his administration is] seeking a harder line in response to domestic political pressures,” said Tai Hui, a strategist at JPMorgan Asset Management in Hong Kong. “Escalation of the trade war could be the trigger for weaker global growth. This is already being reflected in the futures market in early Asian session on Monday, albeit with reduced liquidity. In the near term, investors are rightfully worried since the lingering threat of a trade war weighed on risk assets in 2018, especially in Asia.”

The twist in the China-US trade talks exacerbated the sell-off on Chinese stocks, which were earlier rattled by concerns that top policymakers would pare the stimulus to bolster growth amid improving economic data and first-quarter earnings would be lacklustre. The Shanghai Composite had been down almost 6 per cent through last Tuesday from an April high. Monday’s rout took the decline on the index from the high to 11 per cent, technically marking the start of a correction. The gauge had been the world’s best-performing benchmark this year with a gain of as much as 31 per cent.

The decision by China’s central bank to cut the reserve requirement ratio for some banks was met with a muted response by investors. Rural commercial banks with assets no more than 100 billion yuan (US$14.7 billion) will have the amount of reserves they must set aside lowered to 8 per cent starting next week, unleashing 280 billion yuan into the financial system, the People’s Bank of China said on Monday morning.

The sell-off was broad in both onshore and offshore markets. Out of the 3,524 companies that traded on the Shanghai and Shenzhen exchanges on Monday, 3,417 fell and the remaining 107 rose, while all the 50 constituents on the Hang Seng Index dropped.

Port operators and transport-linked stocks led the decliners on concern the escalation of the trade spat will hurt businesses. Shanghai International Port Group plummeted 9.5 per cent to 7.30 yuan and Ningbo Zhoushan Port tumbled 9.9 per cent to 4.82 yuan. China Eastern Airlines retreated 9.2 per cent to 6.21 yuan and Cosco Shipping Energy Transportation sank 9.9 per cent to 6.21 yuan.

“The market did in my opinion overact to the trade news,” said Gerry Alfonso, a director of the international business department of Shenwan Hongyuan Group in Shanghai. “In the short term, there is going to be a lot of volatility with the market overacting in both directions. Today’s reaction was particularly big as there was a strong market consensus that a trade deal was virtually done, which is probably still the case. Assuming that there is a trade deal and the improving situation in the real economy, that should give the equity market support in the medium to long turn.”

In Hong Kong, Chinese pork processor WH Group, Geely Automobile Holdings and Techtronic Industries were the worst performers on the city’s benchmark, falling at least 6.8 per cent.


Category: Hong Kong

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