Chinese stocks dive as trade dispute with US escalates
Analysts say any correction could be good entry point to market
SHANGHAI: Stocks in Hong Kong and mainland China fell as the US outlined its plan to slap tariffs on Chinese imports.
The Shanghai Composite Index fell as much as 4.7% before paring its loss to 3.4%, while the Shenzhen Composite had its worst day since December 2016, falling 4.5%. The Hang Seng Index lost 2.5%.
The stocks hardest hit yesterday by President Donald Trump’s levies included outsourcer Li & Fung Ltd and meat processor WH Group Ltd, which both fell as much as 10%. Sunny Optical Technology Group Co lost 5.5% and AAC Technologies Holdings Inc dropped 6.8%. Agricultural stocks were among the few gainers as China announced plans for reciprocal tariffs on US$3bil of imports from the US, including fruits, nuts and pork.
“Markets will remain volatile while investors watch further developments on trade frictions between China and the US,” said Daniel So, Hong Kong-based strategist with CMB International Securities Ltd.
“There are no specifics on taxable goods yet and people would expect dialogue between the two parties to avoid a trade war.”
Analysts including Hanfeng Wang at China International Capital Corp and Citigroup Inc’s Oscar Choi suggested that any correction could be a good entry point to the market, as the exposure of Chinese companies to the US is relatively low. But Bocom International Holdings Co strategist Hao Hong cautioned against being too hasty to “catch falling knives.”
“While the market’s pessimistic reflex may be tempting for some to bottom fish, we note that market visibility in the near term is extremely clouded,” Hong wrote in a note yesterday.
Chinese investors off-loaded 857 million yuan (US$135mil) worth of Hong Kong shares via trading links, the first net sale this month and the biggest since late February, Bloomberg calculations based on daily quota usage show.
Apple suppliers were among the hardest hit on mainland China, with GoerTek Inc dropping as much as 10% and Suzhou Anjie Technology Co also slumping by the 10% daily limit in Shenzhen. The big-cap CSI 300 index lost as much as 4.6%, the most since Feb 9, before paring to close down 2.9 percent.
“If the decline extends further, the ‘national team’ may step in to buy heavyweights like banks to prop up the market,” said Ken Chen, Shanghai-based strategist with KGI Securities Co, referring to state-backed funds.
Investors turned to stocks seen as safe-haven bets. Gold miners were the top gainers on the CSI 300 Index, with Shandong Gold Mining Co. and Zhongjin Gold Corp jumping more than 5%. Domestic pig breeders also advanced – Guangdong Wens Foodstuffs Group Co climbed as much as 7.7% and Muyuan Foodstuff Co added 5.5%.
Chinese government bonds rallied yesterday as investors looked for alternatives to the turbulent equity market.
The yield on 10-year sovereign bonds fell two basis points to 3.76%, shrugging off Thursday’s decision by the People’s Bank of China to raise borrowing costs following the Federal Reserve’s interest-rate hike.
Chinese government bonds are poised to be Asia’s best performers this quarter.