Chinese Stocks Slump With Yuan as Trade Talks End in Stalemate

(Bloomberg) -- Chinese stocks fell and the yuan slid to its lowest level this year after the weekend’s trade talks with the U.S. ended with no deal in sight.

The Shanghai Composite Index closed 1.2% lower after losing as much as 1.6%. The gauge staged a huge rally on Friday, supported by buying from state-backed funds and speculation Beijing would be able to counter effects of a worsening trade war with stimulus. The yuan dropped as much as 0.87% in offshore trading Monday to trade beyond 6.9 per dollar for the first time since December.

While Chinese shares remain some of the top performers in world this year, the recent rout wiped out as much as $1.2 trillion in value in just three weeks. Investors based overseas have been taking no chances, dumping mainland-listed shares at a dizzying pace in May following a record month of outflows in April. That’s just as MSCI Inc. prepares to expand their weighting in its benchmarks at the end of this month.

Chinese Stocks Slump With Yuan as Trade Talks End in Stalemate

"Trade talks have come to a deadlock and it’s unlikely we’ll see the situation turn for the better in the near term," said Raymond Chen, a portfolio manager with Keywise Capital Management Beijing Ltd. "Now all eyes will turn to China’s policies and how it will stimulate domestic consumption to maintain its growth."

Read how Beijing put a floor under China’s rout

U.S. tariffs may drag down profits of non-financial mainland-listed firms by 4.2 percentage points, according to analysts at China International Capital Corp. Mainland investors are largely sitting on the sidelines for now, with Monday’s volume on the Shanghai gauge some 37% lower than the 30-day average. Investors are looking for any clues on how Beijing will react, including any additional measures to support the economy.

The offshore yuan has lost about 2.4% in May, making it one of the worst performing currencies in the world. The U.S. on Friday raised tariffs on $200 billion of Chinese goods to 25% from 10%, with Beijing vowing to retaliate. On Monday, U.S. officials are expected to announce details of their plans to impose a 25% additional tariff on all remaining imports from China.

The onshore yuan fell 0.6% to 6.8628 per dollar. Benchmark 10-year government bonds rose, with the yield down 3 basis points to 3.28%. Hong Kong’s financial markets are closed for a holiday and will reopen on Tuesday.

©2019 Bloomberg L.P.