China's Struggling Stock Market Faces Hit From Tariff Tensions

2018/6/21
China’s stocks, already languishing at the lowest level in almost two years, face another setback after the U.S. outlined $34 billion of tariffs that include products made by high-flying listed firms.
The first wave of 25 percent import levies will take effect on July 6, the White House said last week, in response to what President Donald Trump has called decades of theft of American know-how. The tariffs target Chinese President Xi Jinping’s Made in China 2025 plan that seeks to develop sophisticated manufacturing capabilities. For example, printed circuit boards; China’s biggest maker of those, Shennan Circuits Co., has tripled since its December initial public offering.
While “growth wise it’s unlikely to be too much of a dent, for the equity space, there’s a worry that it might topple the market over,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte Ltd. With investors also having to contend with a slowing Chinese economy and a strengthening U.S dollar, the selloff in mainland equities is poised to deepen, she said by phone.
About two hours before Chinese markets open on Tuesday, Trump upped the ante again, saying in a statement that he had directed officials to identify $200 billion of Chinese goods for an additional 10 percent tariff.
The ratcheting up of tensions is a blow to sentiment in the struggling $7.2 trillion equity market, where turnover has been dwindling on concern that the trade spat will hurt China’s already-slowing economy. More specifically, it’s a direct challenge to high-tech investing themes, which were some of the hottest plays last year.
Beijing retaliated last week with tariffs that are politically sensitive to Trump and withdrew any compromises achieved during prior negotiations. Analysts increasingly expect the confrontation to be a war of attrition as the two sides confront the chasm between them, while Beijing has signaled it won’t accept major changes to the Made in China 2025 blueprint.
 
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