Chinese, Hong Kong stocks dive on Trump tariffs threat

AFP – China’s key stock indices plunged more than five percent on Monday after US President Donald Trump threatened to hike tariffs on Chinese imports, potentially derailing high-level trade talks as they enter their final phase.

After plummeting in morning trade, the benchmark Shanghai Composite Index lost yet more ground to open the afternoon session down 5.61 percent, or 172.79 points, at 2,905.55, while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, sank by 6.41 percent, or 105.27 points, to 1,531.32.

In Hong Kong, the Hang Seng Index plunged 3.12 percent, or 939.26 points, to 29,142.29 in the afternoon.

Trump triggered a sell-off across Asia by tweeting a threat to hike tariffs on $200 billion of Chinese goods at the end of the week, apparently to pressure China to reach a trade deal.

But it casts a shadow over the next round of negotiations set for Washington this week, with Bloomberg News and the Wall Street Journal reporting that Beijing was now considering delaying the negotiations in response to Trump’s threat.

The Chinese yuan also suffered, losing 1.3 percent at one point — its heaviest drop for three years — before recovering somewhat in the afternoon to 6.7957 to the dollar, down 0.90 percent.

Trump stoked "risk aversion and panic emotions" in markets, said Qian Qimin, an analyst with Shenwan Hongyuan Securities in Shanghai.

Qian said Chinese shares could fall further in coming days but "should stabilise soon."

"The additional tariffs, if imposed, may not have much impact in the short term since the government can use policies to offset this," he said.

– Pump-priming –

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As markets opened on Monday, China announced the latest in a blizzard of piecemeal pump-priming measures implemented this year to shield its economy and markets.

The People’s Bank of China said beginning May 15 it would cut the amount of cash that small rural banks must hold in reserve, aiming to spur lending.

The move will unlock 280 billion yuan ($41.6 billion) for lending to small private companies, the central bank said.

China has loosened monetary policy and employed a range of stimulus measures this year after markets tanked in 2018 due in part to the trade tensions.

As a result, the Shanghai index rose around 30 percent from the start of this year to mid-April.

But recent hints that China may curtail further stimulus to prevent markets overheating have contributed to an index fall of around 10 percent in the past three weeks.

Individual retail traders, who drive much of the trading volume on Chinese exchanges, anxiously watched a price board at a Shanghai brokerage on Monday, with some venting over Trump’s comments.

"I expected the market would fall but not by so much," said a 77-year-old retiree who gave only her surname, Wang.

"I’m very annoyed. I’ve lost at least five percent. I have no choice but to pray for new measures from the government today."

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