Asian stocks trim gains as China swings to red

ASIAN SHARES pared gains on Monday as Chinese stocks swung into negative territory, driven lower by the escalating SinoUS trade war, though Beijing’s efforts to stop sharp declines in the yuan helped support the currency.

SYDNEY — Asian shares pared gains on Monday as Chinese stocks swung into negative territory, driven lower by the escalating Sino-US trade war, though Beijing’s efforts to stop sharp declines in the yuan helped support the currency.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5%, having risen about one percent earlier in the day.

Chinese shares turned negative with the blue-chip share index and Shanghai’s SSE Composite down 0.7% each. Japan’s Nikkei was flat, while Australian shares added 0.5% and Hong Kong’s Hang Seng index gained 0.7%.

The trade dispute remains a live issue for markets with China proposing tariffs on $60 billion worth of US goods on Friday, while a senior Chinese diplomat cast doubt on prospects of talks with Washington to resolve the bitter trade conflict.

That was followed by a report in China’s state media saying Friday’s retaliatory tariffs were “rational” while accusing the US of blackmail.

At the same time, US President Donald Trump said his strategy of placing steep tariffs on Chinese imports is “working far better than anyone ever anticipated,” citing losses in China’s stock market.

He predicted the US market could “go up dramatically” once trade deals were renegotiated.

“The drip feed of escalating tariff threats from Trump and counter threats from China continues,” said Shane Oliver, chief economist at AMP Capital.

“With a 25% tariff on…(some) Chinese imports likely to commence soon, Trump is clearly ramping up the pressure on China but China is digging in,” Mr. Oliver added.

“A tariff of this magnitude will start to have a significant economic impact on China’s growth, potentially knocking up to 0.5% off growth, and probably also on the US”

At the same time, China has been stepping up measures to support its currency, which has been hit by the worsening trade skirmish.

Late on Friday last week, the People’s Bank of China raised the reserve requirement on some foreign exchange forward positions, making it more expensive to bet against the Chinese currency and helping pull the yuan away from 14-month lows.

The move boosted the Australian dollar, which is often played as a liquid proxy for the yuan. The Aussie came off two-week lows to climb as high as $0.7412 after the announcement, and was last at $0.7389. —