Chinese mainland stocks reverse Tuesday’s losses

Chinese mainland stocks closed higher on Wednesday, reversing early losses, as China and the US stepped up their heated exchange over tariffs that is fueling worries of an all-out trade war.

The Shanghai Composite Index lost 0.6 percent to 2,890.66 points at the end of the morning session, extending Tuesday’s fall. The index closed 0.27 percent up, while the bluechip CSI300 index rose 0.40 percent to end at 3,635.44 points.

Late on Tuesday, the People’s Bank of China, the country’s central bank, urged investors to remain calm and rational, saying the economy is in good shape to deal with trade frictions.

Shares of more than 60 firms were down by the daily limit of 10 percent.

Chinese stocks buckled more than 3 percent on Tuesday – reviving memories of the savage 2015 market crash – after US President Donald Trump threatened to impose tariffs on $200 billion worth of Chinese goods, in retaliation to China’s decision to raise tariffs on $50 billion worth of US goods. China has vowed to retaliate back.

“Given the less predictable twists and turns, we still expect the tit-for-tat tariffs to negatively affect market sentiment in the near term,” Gao Ting, head of China Strategy at UBS Securities, wrote in a report.

As share prices slide, investors are also worried about the risks from stocks that have been pledged as collateral for loans. Margin calls are on the rise, threatening to further tighten liquidity in the financial system which is already pushing up corporate borrowing costs.

Gao said China’s policymakers may fine-tune domestic monetary and credit policies and boost infrastructure investment to counter trade risks.

Such moves could bring relief to markets that have been pressured in recent months by a prolonged regulatory crackdown on riskier lending and shadow banking, which had added to liquidity worries, Gao noted.