Shanghai/Sydney | China’s stockmarket fell 3.7 per cent on Monday after the country returned from a week-long break to growing fears about rising US hostilities, and the long-term effect of a trade war on the world’s second-largest economy.
A move by Beijing over the weekend to inject more liquidity into the banking system failed to comfort investors worried about the potential for US President Donald Trump’s anti-China rhetoric to widen beyond a trade spat into a cold war.
Weak Chinese manufacturing data and a stronger US dollar were also offsetting Beijing’s efforts to stabilise the economy by loosening lending requirements, cutting taxes and selling more domestic bonds, traders warned.
China’s central bank on Sunday continued its loosening stance, cutting the amount of reserves the country’s domestic banks must hold by 100 basis points, its fourth reduction in just over a year. Analysts said the move would inject about 750 billion yuan ($150 billion) into the local economy.
However, concern about US hostilities on the Chinese economy overshadowed the widely-expected move when markets re-opened after the extended public holiday. It was one of the Chinese market’s worst performances in a single day so far this year, although key indices were still above last month’s lows.
“I think it will get much worse before things stabilise,” Willy Lam, adjunct professor at the Chinese University of Hong Kong’s Centre for China Studies, said.
He said last week’s attack on China by US Vice-President Mike Pence, who accused Beijing of interfering in US election, was a “declaration of cold war”.
“And the cold war is just beginning so we anticipate Trump will be using some additional, even tougher measures, including freezing the assets of more Chinese officials,” he said.
The Shanghai Composite Index, China’s largest stockmarket, closed down 3.7 per cent as losses widened late in the session.
“The economy still faces significant downside pressure over the coming months and the need to support the economy will likely persist amid a protracted trade conflict with the US and as efforts to unwind the shadow banking sector proceed apace,” credit rating agency Fitch warned on Monday.
The market is down about 17 per cent so far this year. The Shenzhen Composite was down 3.8 per cent. Hong Kong’s Hang Seng Index, which was not closed last week when it lost around 4 per cent, was 1.1 per cent weaker in late trade.
Liu Dongliang, a senior economist at China Merchants Bank, said he expected China’s government to announce more policies to boost the economy. These might include tax cuts, central bank easing and more domestic bonds issuance.
China issued 883 billion yuan in local bonds in August, an 88 per cent increase on the same period last year.
“These local bonds will help stabilise the economy,” Mr Liu told The Australian Financial Review.
China’s currency on Monday also slipped 0.5 per cent against the US dollar, catching up with falls in other markets which were open last week.
Some traders said they were surprised China’s central bank was willing to cut lending requirements so much at a time when the currency was depreciating.
US Secretary of State Mike Pompeo was due in Beijing on Monday, and expected to meet senior Chinese officials, including Foreign Minister Wang Yi.
Australian shares, meanwhile, also dropped on Monday; a 1.4 per cent, or 85 point, slide to 6100 took the main index back to a level last seen in June. It was the heaviest single-session retreat since March.
Banks and miners weighed down the market, with diversified resources giant BHP losing 2.8 per cent to $34.50 and banking group ANZ falling 2.6 per cent to $26.99 after telling the market it would write down more than $800 million in its annual result.
MYOB managed to soar 19.1 per cent to $3.55, bolstered by a $2.2 billion bid from KKR.
“Our fortunes are loosely linked to the Chinese market,” Ben Clark, portfolio manager at TMS Capital said.
Selling in China on Monday was partly due to investors playing “catch-up” with the Australian and US market, which had come under some selling pressure, said Mr Clark.