Shanghai, Hong Kong stocks slide lower as credit data, trade war dim growth outlook

China’s stocks and currency got hammered as credit growth missed analysts’ estimates and Beijing vowed to retaliate against the US tariff increases, adding to worries that an economic recovery will falter.

The Shanghai Composite Index dropped 1.5 per cent, or 42.80 points, to 2,850.95 at the close on Thursday, the lowest level since February 22. The yuan also weakened to the lowest against the US dollar since January in both onshore and offshore trading. Traders sought shelter in safe assets, driving the yield on China’s 10-year government bonds down to a four-week low.

Hong Kong’s Hang Seng Index slid to its lowest level in two months.

The risk appetite faded after April data from the People’s Bank of China showed aggregate financing and new lending both fell short of projections, calling into question the strength of the world’s second-largest economy. On the trade-dispute front, China turned more hawkish in tone, with the Commerce Ministry saying in a statement late Wednesday that necessary countermeasures will be taken against any trade tariff increases by Washington. President Xi Jinping’s top trade negotiator Liu He will be in Washington for two days through Friday for a fresh round of trade talks.

Trading volumes on the Shanghai and Shenzhen bourses were at least 36 per cent below their 30-day averages, according to Bloomberg data, indicating waning demand for equity trading.

“The credit data is adding uncertainty to the market and has aroused concerns about the prospects for the economy,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “Eyes will also be on the coming China-US trade talks and the result is not predictable. Lots of investors are on the sidelines now.”

Liquor distillers and insurance companies paced the decline. Foreign investors also added fuel to the sell-off, dumping Chinese stocks for a fifth straight day via the exchange link with Hong Kong. Favoured picks by foreign fund managers, including liquor distiller Kweichow Moutai and Ping An Insurance Group, all retreated. Kweichow Moutai dropped 2.9 per cent to 858.81 yuan and major rival Wuliangye Yibin lost 4.2 per cent to 91.81 yuan. Ping An slid 2.7 per cent to 76.66 yuan and China Life Insurance sank 3.7 per cent to 32.11 yuan.

Property developer Tahoe Group tumbled 8.8 per cent to 15.96 yuan. The company received a letter from the Shenzhen Stock Exchange, which questioned its ability to repay debts. The inquiry by the stock exchange highlighted the huge gap between the developer’s short-term debt and cash flow.

In Hong Kong, the Hang Seng Index dropped 2.4 per cent, or 692.13 points, to 28,311.07, the lowest close since March 8. The Hang Seng China Enterprises Index, or the H-share gauge, lost 2.3 per cent.

Geely Automobile Holdings slumped 6 per cent to HK$13.50, its lowest close since March 4 as the worst performer on the Hang Seng gauge. Its auto sales decreased 19 per cent from a year earlier in April and dropped 17 per cent on month.

Mega Expo Holdings, an event organiser, plummeted 30 per cent to HK$2.95 before trading was suspended. That followed a short-seller report accusing the company of fraud.