HONG KONG/SHANGHAI (Reuters) - Chinese stocks skidded further on Tuesday and the onshore yuan fell to its weakest level of the year as the Sino-U.S. trade war intensified.
Markets managed to claw up from early lows, however, with shares buoyed by suspected state-backed buying and comments from U.S. President Donald Trump that raised hopes the two sides would eventually reach a trade deal.
The Shanghai Composite ended 0.7% lower at 2,883.61 points, while the blue-chip CSI300 eased 0.6 %, paring some of their initial losses. Both indexes swung in and out of positive territory during the session.
The recovery was aided by “national team” purchases, according to some analysts, referring to state-backed institutions.
Zhang Qi, analyst at Haitong Securities in Shanghai, said there was “buying of key stocks” by state-backed players, noting relatively high volume in the morning.
About 20.8 billion shares changed hands in Shanghai on Tuesday, not far off the 21.2 billion during Monday’s sell-off.
“There could have been state buying in early morning trade when there panic selling was evident,” said a second Shanghai-based analyst, who did not want to be identified.
Earlier, Trump said he would meet Chinese President Xi Jinping at a G20 summit in late June, reigniting hopes for an agreement.
Trump also said on Monday that he has not made a decision to go ahead with threatened tariffs on another $325 billion in goods from China.
His comments came after China announced on Monday higher tariffs on $60 billion of U.S. goods, effective June 1, in retaliation for Washington’s decision last week to hike levies on $200 billion in Chinese imports.
“The talks have not collapsed,” Steven Leung, sales director at UOB Kay Hian in Hong Kong, said of the recovery in A-shares. “People are also speculating on whether China will roll out more policy support measures.”
CSI300’s sub-index for the financial sector fell 0.6% and consumer staples dropped 0.8%. Healthcare shares slid almost 1% and real estate stocks lost 0.8%.
The smaller Shenzhen market lost 0.6%, while the start-up ChiNext board fell close to 0.6% despite MSCI confirming it would include part of the board in its benchmark emerging market index..
The Hong Kong stock market, returning from a holiday, ended down 1.5% in its first reaction to the tariff retaliation, as the market was closed on Monday for a holiday.
Foreign investors sold a net 10.6 billion yuan ($1.54 billion) worth of A-shares.
In the currency market, the onshore yuan weakened 0.1% to its lowest level since Dec. 27, 2018 in late afternoon trade, and stood at 6.8854 per dollar at the 4.30 pm close, after the Chinese foreign ministry said it hopes the United States does not underestimate its determination to protect its interests.
The offshore yuan climbed off a four-month low following Trump’s remarks on prospects for a trade deal, but later erased most of its intraday gains as the onshore market faltered. [FRX/]
“The market desperately wants to believe in a deal and takes any headline to ignite renewed optimism,” said a Hong Kong-based FX sales banker at an international lender.
Prior to the onshore market open, the People’s Bank of China set its midpoint at its weakest in four months, but traders said it was still higher than the market had expected after the currency lost all of its year-to-date gains on Monday.
The flare-up in trade tensions has renewed global financial market concerns over how much China will allow the yuan to weaken to offset heavier pressure on its exporters. But analysts believe authorities will keep depreciation in check due to concerns about potential capital outflows.
($1 = 6.8731 Chinese yuan renminbi)
Editing by Jacqueline Wong, Simon Cameron-Moore & Kim Coghill