China stocks extend slump on trade war fears; Hong Kong up

SHANGHAI: China stocks fell on Wednesday, extending a rout from the previous day, as Washington and Beijing stepped up their heated exchange over tariffs that are fuelling worries of an all-out trade war.

The CSI300 index fell 0.5 percent to 3,602.71 points at the end of the morning session, while the Shanghai Composite Index lost 0.6 percent to 2,890.66.

Shares of more than 60 firms were down by the daily limit of 10 percent.

Late on Tuesday, China's central bank urged investors to remain calm and rational, saying the economy is in good shape to deal with trade frictions.

Chinese stocks buckled more than 3 percent on Tuesday -- reviving memories of the savage 2015 market crash -- after U.S. President Donald Trump threatened to impose tariffs on $200 billion of Chinese goods, in retaliation for China's decision to raise tariffs on $50 billion in U.S. goods. Beijing has vowed to retaliate.

China has underestimated U.S. President Donald Trump's resolve to impose more tariffs unless it changes its "predatory" trade practices, a White House trade adviser said on Tuesday, after Trump greatly expanded the amount of Chinese imports possibly facing new duties.

An official Chinese state-run newspaper shot back on Wednesday, saying the Trump administration has "blood lust" when it comes to pushing its trade agenda against China and wants to "suck the lifeblood" from the Chinese economy.

"Given the less predictable twists and turns, we still expect the tit-for-tat tariffs to negatively affect market sentiment in the near term," Gao Ting, Head of China Strategy at UBS Securities, wrote in a report.

As share prices slide, investors are also worried about the risks from stocks that have been pledged as collateral for loans. Margin calls are on the rise, threatening to further tighten liquidity in the financial system which is already pushing up corporate borrowing costs.

The market value of the pledged shares whose prices are under levels at which they will be liquidated is estimated to be around 1 trillion yuan ($154.42 billion), Essence Securities said in note, adding those risks will intensify if the market falls further.

Zhengzhou Sino-Crystal Diamond tumbled 10 percent to its lowest since June 2014, as major shareholders' faced margin calls on their pledged shares.

The central bank had stepped in unexpectedly on Tuesday morning to add funds to the system via one of its lending programmes, and many analysts expect further support measures in coming months as the trade battle threatens to add pressure on China's already cooling economy.

China should cut banks' reserve requirement ratios (RRR) to help ease their burdens, the central bank said in a working paper on Tuesday, fanning expectations of an imminent policy move.

Gao said China’s policymakers may fine-tune domestic monetary and credit policies and boost infrastructure investment to counter trade risks.

Such moves could bring relief to markets which have been pressured in recent months by a prolonged regulatory crackdown on riskier lending and shadow banking, which had added to liquidity worries, Gao added.

In Hong Kong, the Hang Seng index added 0.4 percent, to 29,588.40 points, while the Hong Kong China Enterprises Index lost 0.1 percent, to 11,484.73.

The yuan was quoted at 6.4769 per U.S. dollar, 0.09 percent firmer than the previous close of 6.483.

The largest percentage losses in the Shanghai index were Tsinghuatongfang Co Ltd, Tonghua Grape Wine Co Ltd and Yiwu Huading Nylon Co Ltd, which all skidded around 10 percent.

The largest percentage gainers in the main Shanghai Composite index were Xining Special Steel Co Ltd, Hangzhou Youngsun Intelligent Equipment Co Ltd and Jiangsu General Science Technology Co Ltd, which all climbed 10 percent.

The top gainers among H-shares were Guangdong Investment Ltd , up 2.42 percent, followed by Shenzhou International Group Holdings Ltd gaining 2.35 percent and Huaneng Power International Inc up by 2.26 percent.

The three biggest H-shares percentage decliners were Anhui Conch Cement Co Ltd, down nearly 4 percent, Haitong Securities Co Ltd, off 1 percent and Agricultural Bank of China Ltd, also down 1 percent.

As of midday, China's A-shares were trading at a premium of 20.35 percent over the Hong Kong-listed H-shares.

The Shanghai stock index is below its 50-day moving average and below its 200-day moving average.

The price-to-earnings ratio of the Shanghai index was 12.65 as of the last full trading day while the dividend yield was 2.7 percent. - Reuters