April 4, 2018 / 7:30 AM / 6 months ago

China stocks turn down as investors brace for countermeasures against US tariffs

SHANGHAI, April 4 (Reuters) - China stocks gave up early gains and ended slightly lower on Wednesday as investors trimmed their equity exposure ahead of the Tomb-sweeping holiday break and as they braced for Beijing’s countermeasures against U.S. tariffs on Chinese exports.

While there was some lingering unease among investors, most see the widely-expected U.S. sanctions as having negligible impact on growth, and expect a full-blown trade war will be averted through negotiations.

Both the blue-chip CSI300 index and the Shanghai Composite Index dipped 0.2 percent, to 3,854.86 points and 3,131.11 points, respectively.

Most sectors fell but the consumer sector, which is widely seen as immune to trade disputes, rose over 3 percent. Gold stocks also strengthened, reflecting simmering anxiety over Sino-U.S. trade relations.

Late on Tuesday, the Trump administration announced 25 percent tariffs on $50 billion of annual imports from China, covering around 1,300 industrial technology, transport and medical products.

China’s commerce ministry immediately warned it was preparing countermeasures of equal intensity, with a press conference slated late Wednesday afternoon to discuss Sino-U.S. relations.

But there were no signs of the kind of panic seen about two weeks ago when U.S. President Donald Trump vowed to impose tariffs on up to $60 billion of imports from China, raising fears of a trade war and triggering a sell-off in risky assets.

“The market reaction has been calm because investors are psychologically prepared for the move,” said Tai Hui, Chief Market Strategist for Asia Pacific, J.P. Morgan Asset Management.

“The largest concern remains whether this trade tension could further escalate, but history suggests negotiation is likely to follow, which would provide some much needed short term relief to investors and allow them to focus back on economic and corporate fundamentals, which are still in decent shape.”

Tai’s view was echoed by Kai Kong Chay, Greater China portfolio manager at Manulife Asset Management, who estimates the U.S. sanctions would lower China’s GDP by only 0.1 percent.

“The Chinese economy’s structure is changing,” he wrote, adding that the contribution from household consumption to GDP growth has steadily increased to over 4 percentage points over the past five years, while that from net exports stabilised at 0.1 percentage point.

The asset manager favoured sectors such as consumer, education and environmental protection that benefit from rising domestic consumption and are shielded from trade frictions.

China stocks will halt trading on Thursday and Friday for the Tomb-sweeping holiday, which commemorates and pays respect to a person’s ancestors. (Reporting by Shanghai Newsroom Editing by Shri Navaratnam)

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