Sino-U.S. Trade Disputes Sharp Selloff in Chinese Markets

Sino-U.S. Trade Disputes Sharp Selloff in Chinese Markets

The new rise in the long-running Sino-U.S. trade argument prompted a sharp selloff in Chinese markets a week ago with the yuan, banking, and tech stocks hit specifically hard though some sectors, like farming, managed to outpace.

The market defeat came after U.S. President Donald Trump raised levies on Chinese goods and Beijing hit back with taxes of its own. As result, the yuan is currently off 2.5 percent so far this month.

Since April a frailer currency and trade uncertainties have escalated outflows of foreign funds from the A-share market.

Foreign investors are an important part of the country’s equities market, holding an overall 1.68 trillion yuan ($244.41 billion) worth of A-shares since end-March, increase from 1.15 trillion yuan at end-2018, according to most recent PBOC data.

Starting May 17, foreign investors through the Stock Connect had sold about 36 billion yuan worth of mainland shares in May, snapping a five-month purchasing streak.

Shares in the four largest lenders have taken a beating on worries they will be asked to loan more to prop up the development.

“If there is no resolution to the trade dispute, the banks may need to increase lending while trying to maintain asset quality especially after the weak April data,” strategists at Jefferies said in a note.

Chinese banks reduce new loaning in April after a record first quarter that glimmered fears of more bad lends, however analysts say the central bank will have to sustain policy support through the year.

China’s information technology and telecommunications companies which are heavily reliant on the worldwide supply chain and hence seen as weak to trade tensions have seen a main correction since April.

The CSI IT index fell 21.3 percent from an over one-year high hit on April 2, whereas an index tracking China’s major telecoms companies weakened 22.6 percent from a 16-month high hit on April 22.

Shares of Huawei dealers fell after the Trump organization hit Chinese telecoms giant Huawei with severe sanctions.

China‘s No. 2 telecommunication equipment producer ZTE Corp had fell as much as 67.4 percent in 2018 on a U.S. export ban that threatened to put it out of business.

Companies heavily uncovered to overseas markets also saw their share prices dropping, particularly electronics businesses.

Chinese video scrutiny products supplier Hangzhou Hikvision, which derived 30 percent of its 2018 revenue from foreign operations, tumbled about 25 percent from a 10-month high hit on April 2.

Apple Inc. dealer Luxshare Precision Industry also move back 25 percent from a record high as trade pressures threatened to dislocate the U.S. company’s mainland supply chains.

China’s primary LED products manufacturer Sanan Optoelectronics plunged almost 30 percent in May alone, extending an 11 percent loss in April.

Bucking the trend, agriculture companies increased as investors anticipate them to gain from Beijing’s retaliatory tariffs on U.S. agriculture merchandises.

The CSI China mainland agriculture index slid 1.2 percent in May, a much more uncertain drop than the benchmark Shanghai index’s 6.4 percent tumble over the same period.

The important agricultural sector, Hefei Fengle Seed hoven the maximum enabled 10 percent to a close four-year high, more than expanding so far in May.