Chinese stocks reverse loss as Trump’s tariffs begin; yuan falls

An investor stands at a trading terminal in front of an electronic stock board at a securities brokerage in Shanghai, China, on Wednesday, May 30, 2018. (Bloomberg pic)

SHANGHAI: Chinese stocks turned higher in volatile trade as US tariffs came into effect, while the yuan pared declines. Bonds fell.

The Shanghai Composite Index gained 1.2% at 2.01 pm local time, after earlier tumbling as much as 1.6%. The index is still down for a seventh week, poised for its longest losing streak in six years, and is trading near its lowest level since March 2016. The yuan weakened 0.2% to 6.6497 per dollar, while the yield on 10-year government debt increased 2 basis points.

The US imposed tariffs on US$34 billion of Chinese imports just after midday Beijing time, with China immediately saying it would be forced to retaliate. The Asian nation’s financial markets have been hammered in recent weeks amid concern a drawn-out trade tussle will derail an economy already burdened by tighter liquidity, while a slumping yuan damped the attraction of Chinese assets.

“The US tariff action from today has been very much priced in,” said Banny Lam, head of research at CEB International Investment Corp. “Indexes have fallen too much.”

The Shanghai gauge traded at 1.5 times net assets on Thursday, the cheapest since 2014, after shares sank more than 20% from a January high. Some investors saw the rout as an opportunity to pick up cheap shares, with Australia’s UniSuper Management Pty and Chinese hedge fund Shanghai Chongyang Investment Management Co. saying they were adding to positions.

Levies on another US$16 billion of goods could follow in two weeks, President Donald Trump earlier told reporters, before suggesting the final total could eventually reach US$550 billion, a figure that exceeds all of US goods imports from China in 2017.

Companies most shielded to an economic downturn such as consumer staples and health-care firms led gains, while some large-cap shares also climbed. Industrial & Commercial Bank of China Ltd. advanced 1.9%, paring its annual loss to 14%. The Hang Seng Index advanced 1.1% after dropping 0.9% earlier.

Gains may be short-lived, however if the trade battle is drawn out.

“Sentiment had worsened to extreme levels,” triggering bargain hunting, said Sun Jianbo, president of China Vision Capital Management in Beijing. “The technical rebound is unlikely to be sustained, and the bear market is far from nearing an end given trade war concerns.”