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China Market falls amid trade war woes, weak yuan

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Headline indices of the Mainland China equity market declined on Thursday, 28 June 2018, as concerns about the economic outlook amid a bitter trade dispute with the United States and a weakening renminbi continued to weigh on the investors sentiments. The benchmark Shanghai Composite Index was down 0.9%, or 26.28 points, to 2,786.90, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.2%, or 18.75 points, to 1,556.82. The blue-chip CSI300 index fell 1%, or 35.73 points, to 3,423.53.

The Shanghai benchmark tumbled 22% from its most recent high, extending the bear market it entered at the beginning of the week. Bear markets are characterised by a fall of 20% or more from a high. Chinese equities have been under pressure as worries of US tariffs on Chinese exports compounded existing investor worries of credit tightening and middling economic readings.

 

Investors worried a depreciating yuan could trigger capital outflows in a blow to asset prices and push up costs for domestic airlines with U.S. dollar-denominated debts. China's yuan weakened beyond a psychologically key 6.6 per U.S. dollar level for the first time in six months yesterday, amid the escalating Sino-U.S. trade row.

The yuan has declined almost 5% since touching its strongest level in late March amid trade tensions with the United States and this week's decision by the People's Bank of China to cut the reserve requirement ratio a move set to unlock 700 billion yuan (US$107 billion) in liquidity effective July 5.

There were few signs of easing trade tensions between the United States and China. The Trump administration de-escalated a confrontation with China on Wednesday, dropping plans to impose strict limits on Chinese investment in U.S. technology companies and instead urging Congress to strengthen existing laws that apply to all foreign countries. The administration's more conciliatory stance raised at least the possibility that the two sides could work toward a negotiated end to the punishing tariffs that they're set to impose on each other's goods beginning July 6. On July 6, the United States has said it will impose tariffs on $34 billion in Chinese imports a sum that could reach $450 billion if Beijing refused to yield and retaliated with its own sanctions. In response, China is prepared the same day to slap tariffs on billions in U.S. exports, including soybeans a direct threat to Trump supporters in America's heartland.

Focus was squarely on China's economic outlook: data showed profits at China's industrial firms rose sharply in May, but a private survey on the nation's manufacturing sector was less encouraging and highlighted a worrisome trend that could add to pressure on growth.

CURRENCY NEWS: China's yuan declined against greenback on Thursday, registering an 11th straight day, as central bank lowered the currency's daily fixing rate for a seventh consecutive day against the U.S. dollar. The PBOC set the yuan's midpoint at 6.5960 per dollar, down 0.6% or 391 points from Wednesday's 6.5569. The central bank has lowered the midpoint for the last seven days in a row, reducing it by 2.7%. The offshore yuan traded at a fresh six-month low of 6.6300 per US dollar on Thursday, down 0.2% from Wednesday and 3.8% from June 13, just before its 11-day losing streak began.

OFFSHORE MARKET: U.S. stocks closed lower on Wall Street Wednesday, 27 June 2018, on reports that the Trump administration wasn't softening its stance on imposing limits on Chinese investments. The Dow Jones industrials fell 165 points or 0.7% to 24,117 and the S&P 500 slid 23 points or 0.9% to 2,699. The Nasdaq composite lost 116 points to 7,445, its lowest close since May 31.

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First Published: Jun 28 2018 | 1:33 PM IST

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