China Market extends losses

Headline indices of the Mainland China equity market closed down on Monday, 20 May 2019, as investors remained concerned about the US-China trade row, with the focus being fixed on the sticking point of technology transfer. At closing bell, the benchmark Shanghai Composite Index dropped 0.41%, or 11.69 points, to 2,870.60. The Shenzhen Composite Index, which tracks stocks on China's second exchange, sank 0.75%, or 11.50 points, to 1,521.72. The blue-chip CSI300 index declined 0.86%, or 30.97 points, to 3,617.79.

Market sentiment has been hurt after reports that the U.S. President Donald Trump and his administration imposed sanctions on Chinese giant telecom company Huawei. U.S.-based firms are now required to have a license if they want to conduct business with the Chinese company.

An executive order by the Trump administration, aimed at banning Huawei equipment from U.S. networks, took effect on last Thursday. The order also subjects the Chinese telecommunications giant to strict export controls. China has threatened to retaliate. It remains to be seen how the move will affect trade negotiations.

On Sunday, Google has now suspended some business with Huawei and all Huawei-made phones will immediately lose access to updates to the Android operating system, the world's most popular smartphone software. Newer Huawei smartphones coming out in the future will lose access to the Google Play Store and Gmail app, according to the report.

U.S. President Donald Trump said in an interview aired on Sunday night that the tariffs on Chinese goods were causing companies to move production out of China to Vietnam and other countries in Asia. China has recently struck a sterner tone in its rhetoric, suggesting that a resumption of talks, aimed at ending the 10-month trade war between the world's two largest economies, was unlikely to happen soon.

The People's Bank of China said, in its first-quarter policy implementation report, that it would fine-tune its policy in line with changes in the economy and prices. The report seemed to send a less dovish tone for monetary policy, with the balance between growth stability and financial stability tilted a bit to the latter.

The flare up of US-China trade tensions led to outflows of more than US$2.5 billion in Chinese equities last week, or around US$600 million a day, according to data from the Institute of International Finance.

CURRENCY NEWS: China's yuan strengthened against the U.S. dollar on Monday, despite with China's central bank softer midpoint fixing. Prior to market opening, the People's Bank of China (PBOC) lowered its official midpoint for the eighth straight day to 6.8988 per dollar, 129 bps or 0.19 weaker than the previous fix of 6.8859. Monday's fixing was the softest since Dec. 24, 2018. In the spot market, onshore yuan opened at 6.8975 per dollar and was changing hands at 6.9078 at around late afternoon, 110 bps firmer than the previous late session close but 0.13 percent softer than the midpoint.

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