China Stocks Resume Slide as Yuan Rebound Fails to Soothe Nerves

(Bloomberg) -- Chinese equities closed at the lowest since March 2016, resuming their slide as the planned imposition of U.S. tariffs on Friday overshadowed one of the yuan’s strongest days this year.

After a small and short-lived early morning gain, the Shanghai Composite Index fell steadily through the day, closing down 1 percent. The gauge has dropped more than 10 percent over the past month, making it one of the world’s worst performing benchmarks, along with an index of Chinese stocks listed in Hong Kong. Property developers were again among the hardest hit, as a state researcher warned of mounting bad debt in the sector.

The declines came even as the yuan strengthened for a second day, rising as much as 0.7 percent to 6.6001 per dollar after the central bank said it would keep the currency stable following a tumble in recent weeks. Still, the outlook for Chinese assets remains clouded by concern over U.S. tariffs, as well as Beijing’s deleveraging campaign and signs of slowness in the economy.

“Yesterday we saw how the commitment to stabilizing the yuan was a jolt in the arm to markets, but the optimism has been short lived, canceled out by uncertainties as we head toward the trade tariff deadline,” said Fei Xiaoping, an analyst at Dongguan Securities Co. “The stock market is extremely susceptible to mood swings and jumpy.”

China Stocks Resume Slide as Yuan Rebound Fails to Soothe Nerves

The U.S. will introduce a 25 percent levy on $34 billion yuan worth of Chinese imports from Friday. That could be just the beginning as the Trump administration is considering slapping a 10 percent tariff on an additional $200 billion of Chinese imports, and even more if Beijing retaliates.

In Shenzhen, the ChiNext index of small caps and technology stocks tumbled 2.6 percent, its biggest loss in two weeks. The measure has plunged 17 percent since May 22. Hong Kong’s benchmark Hang Seng Index fell 1.1 percent to its lowest close in seven months, while the Hang Seng China Enterprises Index sank 1.5 percent.

“The yuan has stabilized a bit, but it remains to be seen if it can halt its losses,” said First Shanghai Securities strategist Linus Yip. “Sentiment is still very weak in the market as investors are still very concerned about trade tensions.”

Here are some of Wednesday’s moves:

  • Shanghai Composite drops 1% to 2,759 points; Hang Seng Index falls 1.1%
  • Hang Seng China Enterprises declines 1.5% to lowest since August 2017
  • Property developers continue to face heavy selling; Country Garden among worst performers on Hang Seng Index, sliding 5.8%; China Overseas Land & Investment -2%, China Resources Land -1.6%
    • China Property Market Risks ‘Accumulating’: State Researcher
  • Tencent drops 2%, biggest drag on Hang Seng Index
  • Macau casino operators mixed in Hong Kong after junket operator says some high-end players have stayed away in the past two weeks; Galaxy Entertainment -0.5%, Sands China +0.5% and SJM +0.6%
  • HNA Infrastructure closes down 1.1% in Hong Kong, shortly after news breaks of HNA Group co-chairman’s death

©2018 Bloomberg L.P.

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