China stocks shrug off US tariffs as they stage V-shaped recovery from 28-month low

PUBLISHED : Friday, 06 July, 2018, 10:06am
UPDATED : Friday, 06 July, 2018, 4:27pm

China’s stocks rebounded from a 28-month low on Friday, led by gains in companies reliant on domestic consumers, even as US tariffs on US$34 billion worth of Chinese imports came into effect, kicking off what some observers believe is a deepening trade war between the world’s two largest economies.

The Shanghai Composite Index rose 0.5 per cent in a V-shaped comeback in afternoon trading, reversing an intraday loss of as much as 1.6 per cent that had dragged the benchmark down to the lowest level since February 2016. Hong Kong stocks also rebounded.

Consumer and health care companies helped with the recovery as traders began to load up on stocks they believe were least exposed to overseas sales. Agricultural producers also gained on expectations that Beijing will levy retaliatory tariffs on US goods from soybean to pork.

“The materialisation of US$34 billion of tariffs on both sides has led to market relief and a rebound in stocks, although the market is likely to remain volatile on expectations that Trump may launch new measures as early as in the coming week or so,” said Kingston Lin King-ham, director of securities brokerage AMTD.

At noon Beijing time, the 25 per cent tariff on Chinese goods ranging from farming equipment to semiconductors and aircraft parts came into effect. Duties on another US$16 billion worth of goods could be imposed in the next two weeks, US President Donald Trump said on Thursday.

He also hinted that the final value of the tariffs could eventually reach US$550 billion, a figure that exceeds China’s annual exports to the US.

Just minutes after the tariffs took effect, a spokesman from the commerce ministry said China would fight back to protect the interests of the state and its people. Beijing had said earlier that it would come up with similar retaliatory measures if the US imposed the tariffs.

The Shanghai Composite rose 13.35 points to end at 2,747.23, paring its weekly loss to 3.5 per cent. Still, the benchmark of 1,400-plus stocks capped a seventh straight weekly loss, the longest losing streak in six years. Hong Kong’s Hang Seng Index climbed 0.5 per cent to 28,315.62.

All signs had pointed to an imminent rebound in Chinese equities. The Shanghai Composite was valued at 13.2 times earnings this week, lower than the aftermath of a 2015 crash that wiped off US$5 trillion in market value. Its 14-day relative strength index has been below the reading of 30 for the whole week, indicating stocks were oversold.

Other major markets in Asia also ended higher on Friday, with Japan’s Topix to Australia’s S&P/ASX 200 gaining at least 0.9 per cent.

“In the past six months, the Sino-US trade relationship has gone from tariff threats to implementation,” said Tai Hui, chief market strategist at JPMorgan Asset Management in Hong Kong. “These tensions are like an ongoing chronic back pain. Investors may not notice for a while, but they can come back and haunt us from time to time.”

Among consumer and pharmaceutical companies, Inner Mongolia Yili Industrial Group, China’s biggest dairy maker, added 4.4 per cent to 27.47 yuan and Jiangsu Yanghe Brewery Joint-Stock rose 1.6 per cent to 128.36 yuan. Chongqing Zhifei Biological Products gained 3.4 per cent to 46.00 yuan.

Heilongjiang Agriculture led the gain among farming stocks, surging 6.7 per cent to 10.17 yuan. Zhongnongfa Seed Industry Group jumped 5.7 per cent to 3.33 yuan.