Shanghai Stocks Hit Lowest Since 2016 as U.S. Tariff List Looms

Shanghai Stocks Hit Lowest Since 2016 as U.S. Tariff List Looms-上证指数创2016年以来新低
Published on: June 14, 2018
Author: Editor

The Shanghai Composite Index dropped to its lowest since September 2016 and a whisker away from the 3,000-point mark as the U.S. prepared to release a list of goods upon which it will impose tariffs.

The benchmark was down 0.9 percent at 3,016.57 as of the mid-day trading break on Friday, heading for a fourth straight weekly loss, its worse run this year. Kweichow Moutai Co. was the biggest drag on the gauge, which hasn’t dropped below 3,000 since 2016. The ChiNext measure of small cap and technology stocks fell 1.9 percent, while Hong Kong’s Hang Seng Index slipped 0.1 percent, erasing an earlier gain.

“There’s worry over the slowing economy and trade tensions as the U.S prepares to release the list of tariff targets,” said Francis Lun, Hong Kong-based chief executive officer of Geo Securities Ltd. “All indicators are pointing to an economic slowdown.”

Official data Thursday showed industrial output, retail sales and investment in May were all below economists’ expectations, while the central bank’s decision to refrain from following the Federal Reserve in raising borrowing costs underscored a level of caution about the state of the Chinese economy. The U.S. tariff plan has compounded the downbeat mood.

Wang Qing, a Shanghai-based analyst at Yuanta Securities Co., said the weaker economic data and U.S. trade dispute have pressured A shares, and that the Shanghai Composite could fall below 3,000 if tariff news prompts panic selling by retail investors.

“Further downside in the market could be limited as China may ease its credit tightening to offset the potential hit from U.S. tariffs,” the analyst added.

Geo’s Lun said there is also concern that Chinese depositary receipts will drain liquidity from the market, which is hitting smaller companies hardest. There could be more than $700 billion worth of new issuance via CDRs, with the first listing likely in the third quarter, according to Goldman Sachs Group Inc.

“There’s fear that CDRs will take money out of the market, because whenever you have large listings there are withdrawals,” Lun said. “Credit tightening and deleveraging is hitting the tech sector or small cap stocks more.”

President Donald Trump has approved tariffs on Chinese goods worth about $50 billion, according to a person familiar with the situation. The U.S. is due to release a list later Friday with more details on the products affected.

Source: Bloomberg

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