Caixin
May 30, 2018 07:03 PM
FINANCE

China Stocks Tumble to 19-Month Low on Trade War Fears

An investor watches a stock listing board at a securities brokerage in the eastern city of Nanjing on Tuesday. Photo: IC
An investor watches a stock listing board at a securities brokerage in the eastern city of Nanjing on Tuesday. Photo: IC

*The benchmark Shanghai Composite Index closed at its worst level since late 2016

*Telecommunication equipment companies and raw material firms led the losses, while semiconductor firms bucked the trend

China’s stock markets fell to their lowest level in 19 months on Wednesday, as investors dumped shares after U.S. President Donald Trump dashed hopes for a more-harmonious resolution of trade tensions with Beijing with his renewed threat of punitive tariffs on Chinese imports.

The benchmark Shanghai Composite Index closed down 2.53% for the day at 3,041.44 points, its worst closing level since Oct. 17, 2016. The sharp decline, the most in two months on a percentage basis, boosted the gauge’s losses to 5.4% over the last six trading days, and sent it to levels even lower than those seen after Trump announced his initial plan for protective tariffs on Chinese goods on March 22.

The Shenzhen Component Index retreated by 2.35%, while Hong Kong’s Hang Seng Index, which is more intricately linked with the global financial system, declined by 1.4%.

In a Tuesday statement, the White House said the U.S. is moving ahead with plans to impose tariffs on $50 billion of Chinese imports and curb investment in sensitive technology. It added a final list of targeted imports will be released by June 15 and the tariffs will be imposed “shortly thereafter.”

China’s Ministry of Commerce reacted harshly, saying it was surprised by the move, which contradicted the consensus reached by both sides after two previous rounds of talks.

Citic Securities said there will be a limited economic impact from the proposed U.S. tariffs, according to its Wednesday daily note. But escalating tensions will have a negative impact on risk appetite from A-share investors, while uncertainties could haunt the technology sector if trade frictions continue, it added.

“Geopolitical factors and uncertainties in diplomatic ups-and-downs between the U.S. and China have intensified volatility of the mainland market,” Zhou Wenqun, a fund manager at Fidelity International Fund, said on Wednesday during a media panel discussion. “As it’s hard for investors to evaluate the overall picture, they are turning more sensitive toward news, and tend to adjust their portfolio more quickly.”

Telecommunication equipment companies and raw-material firms led the losses on China’s domestic A-share markets, with Hengtong Optic-Electric Co. down by more than 7.6% and China Molybdenum Co. off by more than 6%. Pharmaceutical firm WuXi AppTec Co. Ltd. tumbled about 7.3%, marking the first decline since its public listing more than three weeks ago. The stock had previously risen by the daily limit for 16 straight days, lifting its shares more than sixfold above their IPO price.

However semiconductor-makers like SinoSun Technology Co. bucked the downward trend, as investors bet that group could benefit from potential new U.S. restrictions on technology transfers to China. That company’s shares rose by their daily 10% limit soon after the morning session kicked off.

The stock market tumble came two days ahead of the official inclusion of some 234 A-shares into widely tracked equity indexes provided by the global index giant MSCI Inc. That inclusion is expected to bring some $4 billion worth of passive investment funds and $15 billion in active investment funds from foreign institutions into mainland equities markets, which are relatively closed to outsiders.

Contact reporter Leng Cheng (chengleng@caixin.com)

To read more about Sino-U.S. trade tensions, click here.

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