SHANGHAI: Chinese stocks plunged and bond yields fell towardS a record low as investors braced themselves for the fall-out of a spiralling trade conflict between the world’s two largest economies.
A key gauge of Chinese shares listed in Hong Kong sank more than 9%, putting it on track for a correction, while the onshore CSI 300 Index dropped over 6%, hitting its lowest level since September.
The country’s benchmark 10-year bond yield declined eight basis points, nearing a record low.
The heavy sell-off worsened a global market rout that followed US President Donald Trump’s sweeping tariff announcements last week, and the subsequent retaliation from Beijing.
The moves have forced investors to confront the reality that a much-feared trade conflict between China and the United States has entered a new phase. “Everyone is rushing to sell and I don’t have a single buy order as yet,” said Andy Maynard, head of equities at China Renaissance.
“People are bewildered as to the next steps because it’s hard to predict what will happen. I think most are exiting their positions and will be cautious to add back.”
The sell-off cut across all sectors. Every member of the Hang Seng China Enterprises Index was lower in early trading, with technology companies Xiaomi Corp and Meituan among the biggest drags.
The rout in Chinese stocks puts more pressure on a sputtering rally that got underway in the first quarter, fuelled by optimism about the country’s advancements in artificial intelligence.
The MSCI China Index had risen 13% year-to-date as of last Friday, compared with an almost 14% drop in the S&P 500 Index.
There is some hope that the current carnage in China’s stock market will prove short-lived, in part because of a belief that Beijing will unleash enough stimulus to offset the damage of tariffs.
Retail investors may wade into the market later this week, treating the sell-off as opportunity to buy the dip, said Kenny Wen, head of investment strategy at KGI Asia Ltd.
Government bonds surged yesterday as investors flocked to the safest assets amid fears that higher US tariffs will hurt China’s already fragile economy even more.
The benchmark 10-year yield slid eight basis points towards the lowest level on record, while futures contracts spiked.
In the foreign exchange market, the People’s Bank of China weakened its daily reference rate for the yuan to a level unseen since December.
That could be an initial signal that Beijing is willing to support growth via currency depreciation.
Wells Fargo & Co sees risks of up to a 15% deliberate depreciation of the currency over a two-month period. — Bloomberg
