Chinese stocks hit fresh four-year low on lingering economy and trade fears

PUBLISHED : Tuesday, 16 October, 2018, 7:13pm
UPDATED : Thursday, 18 October, 2018, 1:37pm

Mainland Chinese stocks reversed to declines on Tuesday afternoon, to post a fresh four-year low that spilled over to Hong Kong equities, because of ongoing worries that a deepening trade war with the US will affect China’s economic growth.

The Shanghai Composite Index finished lower by 0.8 per cent, or 21.77 points, at 2,546.33, marking its lowest close since November 2014. The CSI 300, which tracks the large caps listed in Shanghai and Shenzhen, decreased by 0.8 per cent, or 25.48 points, to 3,100.97, its lowest level since March 2016.

The Shenzhen Composite Index slid 1.9 per cent, or 24.71 points, to 1,256.37 and the Nasdaq style ChiNext also lost 1.9 per cent, or 25.74 points, to 1,313.48.

“There are some who really see a big bear case because of uncertainty in the economy,” said Kevin Leung, executive director of investment strategy at Haitong International Securities. “Chinese stocks are facing a lack of investors’ confidence and a liquidity crunch.”

Official data on Tuesday showed China’s producer price inflation moderated to 3.6 per cent from a year earlier in September, against August’s 4.1 per cent increase, pointing to slowing economic momentum. Consumer price inflation rose to 2.5 per cent in September from the previous month’s 2.3 per cent.

Slowing inflationary pressure and economic growth mean Beijing could turn to stimulus spending and easier credit, even as it vows to keep debt levels under control, analysts said.

No one is taking a long-term view at this point
Kevin Leung, executive director of investment strategy, Haitong International Securities

Including so-called “hidden” local government debt, the ratio of government debt to gross domestic product could have reached an “alarming” level of 60 per cent in 2017, according to S&P Global Ratings.

Hong Kong stocks clawed back some of yesterday’s sharp losses. The Hang Seng Index eked out a gain of 0.1 per cent, or 17.20 points, to close at 25,462.26. The Hang Seng China Enterprises Index climbed 0.5 per cent, or 169.03 points, to 15,055.06.

Oil stocks rose on higher oil prices due to geopolitical tensions in Saudi Arabia. CNOOC advanced by 2.3 per cent to HK$14.92, Sinopec added 0.6 per cent to HK$6.79 and PetroChina gained 0.8 per cent to HK$6.05.

Investors also bought defence stocks, with China Mobile rising 1.4 per cent to HK$77.70.

“No one is taking a long-term view at this point. People will stay on the sidelines until the US midterm elections, which will make it clear if Trump’s hardline trade stance will materialise or not,” said Leung.

The US has so far imposed tariffs on goods worth about US$250 billion, or about half of all imports from China, and threatens to follow up with a third round of duties on the remaining US$267 billion of Chinese goods.

In response, China has slapped tariffs on US$110 billion in imports from the US, covering nearly 90 per cent of all imports from the US.

Schroders said in a report that any subsequent weakening in trade growth would have a greater impact on China than the US, which the stock markets have taken into account as shown by the significant outperformance of the S&P500 against the China’s benchmark Shanghai Composite Index.

The asset manager said the US’ US$250 billion represented around 11 per cent of China’s exports, or 2 per cent of its GDP. The equivalent calculation for the US suggested that only 1 per cent of GDP would be affected if China put tariffs on all its imports from the US, Schroders said.