China’s stocks stumble on fresh trade salvos, yuan firmer on PBOC moves

SHANGHAI: China’s stocks were lower yesterday as Beijing’s latest tariff threats escalated the tit-fortat Sino-US trade war, though the central bank’s efforts to shore up the tumbling yuan helped to stabilise the currency.

At the midday break, both the Shanghai Composite index and the blue-chip CSI300 index were down 0.8 per cent, erasing earlier gains.

Shares in Hong Kong trimmed earlier gains, with the Hang Seng index adding 0.7 per cent. The China Enterprises index gained 0.3 per cent.

The volatility in Chinese markets on Monday comes after the Shanghai and Hong Kong indexes suffered their biggest losses since February last week, weighed by a combination of weak economic data and concerns over the growth impact from the trade war.

“The pressure on China’s economic growth will be relatively heavy amid the trade frictions with the United States, and risk appetite could continue to sour,” said Yang Weixiao, an analyst with Founder Securities in Beijing.

Considering still-tight liquidity, the benchmark Shanghai Composite index could fall below 2,638 points, seen as a key psychological level since early 2016, he said.

“The ‘national team’ could offer some support by buying heavyweight stocks, as they did in late trading sessions in the past days, though the impact would be rather limited,” Yang said, referring to a band of government-backed investors who have been ordered to buy stocks during previous market slumps to support share valuations.

China fired the latest volley in the trade war on Friday, proposing differentiated retaliatory tariffs on US$60 billion worth of US goods ranging from liquefied natural gas (LNG) to some aircraft.

The move followed a proposal by the Trump administration of higher 25 per cent tariffs on US$200 billion worth of Chinese imports to the United States.

Also on Friday, China’s central bank said it will be setting a reserve requirement ratio of 20 per cent from Monday for financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.

On Monday, the state- run China Daily sought to strike a reassuring tone, saying market participants expected a stable yuan, solid growth and were not worried about the impact of the US-China trade dispute.

The onshore yuan opened at 6.8200 per dollar and was changing hands at 6.8260 as of 0405 GMT, 28 pips stronger than the previous late session close of 6.8288. — Reuters