Asian shares battered by China turbulence as trade war anxiety heightens

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Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China June 20, 2018. REUTERS/Aly Song

TOKYO – Chinese stocks went into a tail spin on Tuesday as turbulence gripped equity markets in Asia, which sank to nine-month lows amid heightened anxiety a bitter trade dispute between the United States and major economies could derail global growth.

Speculation was rife China’s central bank was intervening in the currency market to staunch losses and prevent a potentially destabilizing sell-off in the yuan, while stocks came off a searing sell-off in the morning.

Chinese financial markets have been jittery ahead of a July 6 deadline, when the U.S. is set to slap tariffs on $34 billion worth of Chinese goods that Beijing has vowed to match with tariffs on U.S. products.

The trade row between the United States and major economies has rattled financial markets over several weeks, with no sign U.S. President Donald Trump is about to back down from his ‘America First’ protectionism policies that many fear will harm the global economy.

The European stock futures point to gains of 0.3 percent in France’s CAC and Britain’s FTSE and 0.5 percent in Germany’s DAX.

The Asia Pacific MSCI index ex-Japan tumbled as much as 1.4 percent to its lowest since September 29, before cutting some of the losses to be down 0.5 percent. Japan’s Nikkei average also recovered from a 0.9 percent fall and was last off 0.1 percent to a near three-month closing low.

Chinese stocks were hit the hardest, with Hong Kong’s Hang Seng index diving as much as 3.3 percent to its lowest level in ten months, while the Shanghai Composite Index shed as much as 1.9 percent to hit a fresh 28 month low. The Hong Kong market remained choppy and was last down 1.9 percent, while the Shanghai bourse edged up 0.05 percent.

“It’s not clear yet if the trade row will derail the global economy as a whole but it’s already clear that it will harm Chinese companies at least,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“That is why we’ve seen Chinese yuan and Chinese stocks have suffered selloffs. I think this will continue at least until the July 6 deadline.”

The Chinese yuan, on a downward spiral since mid-June, slipped past 6.7 per dollar in early trading on Tuesday for the first time since Aug. 9, 2017 before paring losses on talk of intervention by the Chinese central bank.

Four traders told Reuters that major state-owned banks were seen swapping yuan for dollars in the forwards market and immediately selling some of them into spot market, which helped support the Chinese currency. Traders and economists say major state-owned banks sometimes act on behalf of the central bank in the foreign exchange interbank market.

The central bank put the midpoint roughly in line with market expectations at 6.6497 yuan per dollar, its weakest level in about 10 months, setting the stage for the day’s drop.

The yuan was last traded at 6.6960 per dollar.

“I detected increasing alarm over trade tensions and a lot of nervousness about a full blown trade war, which comes at a bad time for China where the economy is undergoing a downdraft at the same time the United States is seeing a sharp upturn,” Aninda Mitra, Singapore-based senior sovereign analyst at BNY Mellon Investment Management, who visited Shanghai last week, said in an emailed note to media. – Reuters

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