China Stocks Fall, Yuan Weakens Ahead of National Holiday

(Bloomberg) -- Chinese stocks fell and the yuan weakened as caution descended on the country’s financial markets ahead of its 70th anniversary celebrations.

The Shanghai Composite Index closed down 1% at 2,977, while the yuan weakened as much as 0.52% to 7.1287 a dollar. The currency has traded near 7.1 and around its 30-day moving average for about a week, with the People’s Bank of China keeping its daily fixing stronger than that level even as the yuan slumped.

Investors remain unconvinced that China and the U.S. are making meaningful progress on trade. China’s cancellation of a planned visit to American farms was done at the request of the U.S., people familiar with the matter said. Onshore financial markets will be shut for five trading sessions from the Oct. 1 National Day.

“This could just be an excuse to bolt ahead of the national holiday, especially with the market approaching the 3,000 mark,” said Song Jin, an analyst at Shengang Securities. “Though officials have denied that the canceled tours are related to trade talks, the market is not completely buying that line.”

China has a history of supporting sentiment before important dates or major political events, as a volatile yuan or a stock sell-off risk detracting from the celebrations. Monday’s close below the 3,000 point-level is bearish for the Shanghai Composite, as it’s served as a key support level for most of September.

A measure of consumer staples fell 1.3% Monday, among the worst performers on the CSI 300 Index. The subgauge has risen 76% this year, the most among 10 industry groups. Analysts at China International Capital Corp. said the gains may continue in the fourth quarter due to foreign inflows.

Foreign investors sold $215 million of A shares via the trading links with Hong Kong on Monday, the most in a month, according to Bloomberg-compiled data. The links will be closed for five sessions, from Oct. 1 to 4 and again on Oct. 7.

The onshore yuan has rebounded in September after dropping to an 11-year low. Investors took heart from an easing of trade tensions and stronger-than-expected fixings. On Monday, the central bank set the daily reference rate at 7.0734 versus the 7.0813 average estimate in a Bloomberg survey.

“A steady yuan could be regarded as a goodwill gesture before the trade talks,” said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd. “After the holiday, traders need to watch the onshore-offshore yuan gap closely, as the speculation for a weaker currency may rise again.”

In the longer term, the exchange rate will take “a series of mini steps” lower as the trade war flares up again, said Colin Harte, a portfolio manager at BNP Paribas Asset Management.

Hong Kong’s Hang Seng Index fell for a sixth session, the longest slide since October. The measure closed down 0.8%, taking its loss this quarter to 8.1%. That puts it in line for its worst quarterly showing in four years.

To contact Bloomberg News staff for this story: Tian Chen in Hong Kong at tchen259@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, Magdalene Fung

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With assistance from Bloomberg