Bloomberg
Published Jun 18, 2018 19:45
Updated Jun 18, 2018 22:17
China's Struggling Stock Market Faces Hit From Tariff Tensions
(Bloomberg) -- China’s stocks, already languishing at the lowest level in almost two years, face another setback after the U.S. outlined $34 billion of tariffs that include products made by high-flying listed firms.
The first wave of 25 percent import levies will take effect on July 6, the White House said last week, in response to what President Donald Trump has called decades of theft of American know-how. The tariffs target Chinese President Xi Jinping’s Made in China 2025 plan that seeks to develop sophisticated manufacturing capabilities. For example, printed circuit boards; China’s biggest maker of those, Shennan Circuits Co., has tripled since its December initial public offering.
While “growth wise it’s unlikely to be too much of a dent, for the equity space, there’s a worry that it might topple the market over,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte Ltd. With investors also having to contend with a slowing Chinese economy and a strengthening U.S dollar, the selloff in mainland equities is poised to deepen, she said by phone.
About two hours before Chinese markets open on Tuesday, Trump upped the ante again, saying in a statement that he had directed officials to identify $200 billion of Chinese goods for an additional 10 percent tariff.
The ratcheting up of tensions is a blow to sentiment in the struggling $7.2 trillion equity market, where turnover has been dwindling on concern that the trade spat will hurt China’s already-slowing economy. More specifically, it’s a direct challenge to high-tech investing themes, which were some of the hottest plays last year.
Beijing retaliated last week with tariffs that are politically sensitive to Trump and withdrew any compromises achieved during prior negotiations. Analysts increasingly expect the confrontation to be a war of attrition as the two sides confront the chasm between them, while Beijing has signaled it won’t accept major changes to the Made in China 2025 blueprint.
The Shanghai Composite Index fell 1.5 percent last week to close Friday at the lowest since Sept. 30, 2016. Markets in China and Hong Kong were shut on Monday for holidays.
The benchmark mainland index plunged 2.5 percent the day after Trump said he was moving ahead with the tariffs in late May, and has slumped 14 percent since Washington imposed levies on solar-panel imports in January, an industry dominated by China. It’s trading at the lowest level versus the MSCI All-Country World Index since November 2014.
Still, the Shanghai Composite is now hovering just above 3,000 points, a level that it’s bounced off in the past. Some institutional investors are “proactively” making plans to buy A-shares and will buy more if the gauge falls under 3,000, the China Securities Journal reported Tuesday, without saying where it got the information or identifying the institutions.
The latest tariff list “keeps trade war risks alive,” said Shane Oliver, head of investment strategy at AMP Capital, which manages A$188 billion ($140 billion). It’s more “classic Art of the Deal stuff” with an agreement likely in the coming weeks, “but the risks are high and the tariffs could well be implemented before the issue is resolved,” he said in an emailed note.
These are some of the Chinese products in the cross-hairs, according to the U.S. list released last week:
Technology
Transport
Industrial tools, materials and machinery
Read More: Supply Chain Caught in Crossfire of U.S.-China Trade Conflict
Defence and aerospace
(Updates with latest from Trump statement in fourth paragraph.)
Written By: Bloomberg
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