China stocks, currency and metals tumble after US fires up trade war with tariffs on US$200b worth of goods

Tariffs already implemented and those potentially in the pipeline will amount to half of total imports from China last year

PUBLISHED : Wednesday, 11 July, 2018, 10:21am
UPDATED : Wednesday, 11 July, 2018, 6:13pm

Asset classes ranging from mainland and Hong Kong stocks to the yuan and commodities were on Wednesday hit by an escalation in the trade war between the United States and China, after US President Donald Trump threatened to impose tariffs on another US$200 billion worth of Chinese imports.

The benchmark Shanghai Composite Index dropped by 1.8 per cent to halt a three-day rally, while Hong Kong’s Hang Seng Index sank by 1.3 per cent. The offshore yuan fell close to an 11-month low while zinc futures led the decline among base metals on the mainland.

After imposing tariffs on US$34 billion worth of Chinese imports on Friday, the White House said on Wednesday it was seeking public consultation on duties on an additional US$200 billion worth of items, ranging from hundreds of food products to consumer electronics and television components.

The proposed 10 per cent levy may go into effect as early as by the end of next month, with the consultation ending on August 30. The tariffs already implemented and those potentially in the pipeline will amount to half of the total imports from China to the US last year. These were worth US$433.2 billion.

“The US-China trade dispute is something investors need to be paying attention to, as it is far from over, and the impact will be global,” said Hannah Anderson, global market strategist at JPMorgan Asset Management. “It will take markets sometime to fully price in the impact.”

The Shanghai Composite Index retreated by 49.86 points to 2,777.77, ending a three-day rebound of 3.4 per cent. The Hang Seng Index lost 370.56 points to 28,311.69, and the Hang Seng China Enterprises Index, or the H-share gauge, dropped by 1.5 per cent.

Other major markets in Asia also dropped on Wednesday, with benchmarks in Japan, South Korea and Australia dropping by at least 0.7 per cent.

Technology and property developers paced the declines on the mainland and in Hong Kong. Beijing Certificate Authority fell by the 10 per cent daily limit to 27.57 yuan in Shenzhen and Tianze Information Industry slumped by 8.9 per cent to 13.48 yuan. Country Garden Holdings fell by 3.3 per cent to HK$12.82 in Hong Kong and China Overseas Land & Investment shed 2.7 per cent to HK$24.85.

Tesla’s Chinese suppliers defied the downward trend in the broader market, after the US manufacturer of electrical vehicles said it will set up a Gigafactory in Shanghai with an annual output of 500,000 units. Shenzhen Kedali Industry surged by the 10 per cent daily cap to 29.57 yuan and VT Industrial Technology jumped by 10 per cent to 33.77 yuan. Shanghai Baolong Automotive added 7.4 per cent to 29.46 yuan.

The offshore yuan dropped by as much as 0.6 per cent to 6.6918 per US dollar, approaching its lowest level in 11 months touched last week. The onshore yuan fell by as much as 0.7 per cent.

Elsewhere, futures contracts ranging from zinc to copper and aluminium on the Shanghai Futures Exchange traded lower on concerns the potential new tariffs would shrink demand for base metals.

“We are in an all-out trade war,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The trade war will contain aggregate demand in the economy, and base metals will be hit through slower fixed-asset investments.”

Zinc contracts slumped by 5.7 per cent to 20,695 yuan per tonne, copper dropped by 3.4 per cent to 48,120 yuan and aluminium slid by 1.2 per cent to 14,010 yuan.