Trade war fears spook stocks

‘Long-term outlook remains good for markets’

An escalating trade war has seriously dampened global capital markets, with Chinese A-share, H-share and European and US shares falling sharply on Friday.

Chinese stocks closed lower on Friday, with the benchmark Shanghai Composite Index down 3.39 percent and the Shenzhen Component Index closing 4.02 percent lower. China’s NASDAQ-style ChiNext Index plunged 5.02 percent to close at 1,726.02 points.

In the A-share market, more than 400 shares slumped to their daily limit of 10 percent. As the trade war initiated by the US mainly targets emerging industries and manufacturing, most shares in the Chinese mainland – except agriculture and farming – suffered a drop. Communications shares fell 6.67 percent and steel and electronics shares both slid more than 5 percent.

By contrast, soybean shares of Harbin High Tech Co surged to the daily limit of 10 percent and Beidahuang Group share prices closed 7.31 percent higher amid market speculation that China may limit soybeans imports from the US to pressure Trump-supporting US farmers.

US stocks also saw a sharp decline, with the Dow Jones down 724.42 points on Thursday (US time), the worst since February 8. Caterpillar, Boeing and 3M were among the biggest losers, declining 5.71, 5.19 and 4.69 percent, respectively.

Meanwhile, the pan-European STOXX 600 index slid 1.6 percent to its lowest in more than two weeks, while Japan’s benchmark Nikkei 225 index closed down 4.51 percent on Friday, after earlier falling to its lowest in over five months.

Short-term pressure

With the trade war escalating, financial markets are likely to experience two-way fluctuations in the short term, analysts said.

Rising China-US trade conflicts impact investors’ anticipation of Chinese economic growth, which increases their risk aversion in the short term, but the medium- and long-term trend of the A-share market remains good, according to a report from China International Capital Corporation.

Liu Dongliang, a senior analyst at China Merchants Bank, said the shock will linger on for some time.

“Though US stocks have recovered somewhat after suffering their worst fall in more than six years, it has not shaken off downward pressure. With additional pressure from trade war fears, US stocks will continue to decline and a bearish market is also possible,” Liu said in a note sent to the Global Times.

A report from ICBC International Research warned of secondary risks, as this trade war is closely related to Chinese and US currency policies.

“Shocked by the trade war, the long-term outlook of US shares is skeptical. Meanwhile, China’s currency policy is difficult to tighten. Given rising competition between the yuan and the US dollar, the uncertainty of the yuan’s two-way fluctuations will increase,” said the report it sent to the Global Times.

Potential effect on firms

Many companies responded to the impact of US tariffs on Chinese goods worth $60 billion.

General Electric Company expressed its consistent position on trade, saying “we support open markets and a solution of trade disputes through the international trade system,” and “open, fair competition is the best way to generate value, economic competitiveness, and innovation.”

Porton Fine Chemicals in Southwest China’s Chongqing said on cninfo.com.cn, an official website that provides interaction services for public companies and investors, that the US policy has limited influence over the company’s business. “In 2017, our exports to the US represent only 15 percent of our business… According to the transaction terms signed with our clients, most of our tariffs are shouldered by our clients,” the company said.

“Clients care about supply chain stability as well as product quality the most. Hence, we will continue to communicate with our clients and will not waste national resources to do unprofitable business,” it noted.