Stocks drop to 6-month low on trade tensions

Shares in China extended losses on Friday in their worst week since February, with analysts stating that low levels are expected to continue as the trade row between the world’s two largest economies continues to cast gloom over financial markets.

After Thursday’s slump, Chinese equities were worth $6.09 trillion, making China lose its title as the second-largest stock market in the world to Japan. The US still holds its title as the world’s largest stock market at just over $31 trillion, according to data from Bloomberg.

During last week, the Shanghai Composite Index lost 4.6 percent, its worst performance since early February, while the blue-chip CSI300 index was down 5.9 percent.

Xu Gao, chief economist at China Everbright Securities Asset Management, said that the ongoing trade frictions between China and the US will continue to add downward pressure on the domestic stock market.

On Friday, China vowed to retaliate after the US began looking to raise tariffs on an additional $200 billion worth of Chinese imports, fuelling fears among investors that the trade war might escalate even further.

“Internal factors, for example, are causing investors to worry about the capital chain tension that also lead to the drop,” Xu said.

“However, the State Council has already announced a looser monetary policy, which is a positive signal and might ease some concerns in the financial market,” Xu said.

Some analysts noted that there’s still a chance that China’s stock market will recover after a short-term downturn and return to the second place again, citing solid and stable economic fundamentals.

“Currently, the financial policy is beneficial to the all-round development of the country’s economy, and the ups and downs in the stock market are quite normal,” Xu added.

Last week, the market capitalization of the Shanghai stock index fell by 3.63 percent to 29.35 trillion yuan ($4.29 trillion).