China stocks drop to near four-year low as Trump said to prepare new tariffs

China stocks drop to near four-year low as Trump said to prepare new tariffs

Reuters
SEPTEMBER 17, 2018 

SHANGHAI, Sept 17 (Reuters) - China’s main Shanghai Composite index fell to its lowest close in nearly four years on Monday as reports said U.S. President Donald Trump would unveil new tariffs on $200 billion of imported Chinese goods this week.

The Shanghai Composite index dropped 1.1 percent to 2,651.79 points, its worst close since Nov. 27, 2014. The blue-chip CSI300 index also declined 1.1 percent, to 3,204.92 points.

In Hong Kong, the Hang Seng index was down 1.3 percent in late afternoon trade, and the China Enterprises index was off 1.2 percent.

A senior official in the Trump administration told Reuters that Trump would announce the new tariffs as early as Monday. China has vowed to retaliate to any new U.S tariff action, and may decline to participate in further talks if new tariffs are announced.

On Monday, the widely read Global Times tabloid, published by the ruling Communist Party’s People’s Daily, said in an editorial that China would not only play defence in an escalating trade war.

Everbright Sun Hung Kai analysts, said in a note Monday, said China “would very unlikely be visiting the U.S. against this backdrop with both sides looking to preserve face and be seen to be in a strong position.”

The anticipated new tariffs, reported to be 10 percent, may cover a wide range of items including internet technology products and other electronics, printed circuit boards and consumer goods including Chinese seafood, furniture and lighting products, tires, chemicals, plastics, bicycles and car seats for babies, according to a list of items announced in July.

Trump directed aides to proceed with the new tariffs despite Treasury Secretary Steven Mnuchin’s attempts to restart trade talks with China.

Fears of an escalating trade war pulled shares lower across the board. A CSI300 sub-index tracking the real estate sector ended 1.4 percent lower, industrial firms fell 1.2 percent and healthcare firms lost 2.4 percent.

More details in https://www.reuters.com/article/china-st...SL3N1W32C3

(17-09-2018, 05:46 PM)cyclone Wrote: China stocks drop to near four-year low as Trump said to prepare new tariffs

Reuters
SEPTEMBER 17, 2018 

SHANGHAI, Sept 17 (Reuters) - China’s main Shanghai Composite index fell to its lowest close in nearly four years on Monday as reports said U.S. President Donald Trump would unveil new tariffs on $200 billion of imported Chinese goods this week.

The Shanghai Composite index dropped 1.1 percent to 2,651.79 points, its worst close since Nov. 27, 2014. The blue-chip CSI300 index also declined 1.1 percent, to 3,204.92 points.

In Hong Kong, the Hang Seng index was down 1.3 percent in late afternoon trade, and the China Enterprises index was off 1.2 percent.

A senior official in the Trump administration told Reuters that Trump would announce the new tariffs as early as Monday. China has vowed to retaliate to any new U.S tariff action, and may decline to participate in further talks if new tariffs are announced.

On Monday, the widely read Global Times tabloid, published by the ruling Communist Party’s People’s Daily, said in an editorial that China would not only play defence in an escalating trade war.

Everbright Sun Hung Kai analysts, said in a note Monday, said China “would very unlikely be visiting the U.S. against this backdrop with both sides looking to preserve face and be seen to be in a strong position.”

The anticipated new tariffs, reported to be 10 percent, may cover a wide range of items including internet technology products and other electronics, printed circuit boards and consumer goods including Chinese seafood, furniture and lighting products, tires, chemicals, plastics, bicycles and car seats for babies, according to a list of items announced in July.

Trump directed aides to proceed with the new tariffs despite Treasury Secretary Steven Mnuchin’s attempts to restart trade talks with China.

Fears of an escalating trade war pulled shares lower across the board. A CSI300 sub-index tracking the real estate sector ended 1.4 percent lower, industrial firms fell 1.2 percent and healthcare firms lost 2.4 percent.

More details in https://www.reuters.com/article/china-st...SL3N1W32C3

Prepare for share sales, STI will likely hit 2800 levels again, watch next months CHina PMI for continued downtrend.

I wouldn't bet on either drastic drop or massive rally.
Seems both are probable.
Now that the tariffs are clear, a lot of uncertainty is taken off the market, that's good news.
If the markets are more rational, there should be a rally towards the mean valuation.
If fear grips the market, there maybe a drastic drop but since this has been going on for a long time, a lot has already being factored in.
Overall I am more positive than negative.

So what to do? Do the usual, progressively buy into great companies with a great track record of good cash flow and at a decent discount to historic valuations.

I think that Trump is causing a "problem" more for the lower income families in US by imposing 10% tariffs on imports from China.

We should remember the extra 10% cost is actually paid by the US importer and is passed on as a higher wholesale price to the distributor /retailer /supermarket and the seller in turn is paid by a higher product price by the us consumer.

The 10% tariff is not paid by the China factory producing the goods.

In theory higher end price means demand will reduce and "even out the playing field". Same logic on why Singapore has a foreign worker levy. But in reality it depends on whether there's alternative and what is the elasticity of demand.

Non targeted tariff / tax is like an oil shock that doesn't differentiates, affecting input cost across the board resulting in inflation, creating friction and inefficiency, while serving no policy purpose. That means the quality of REAL GDP growth will decline when inefficiencies seep into the system. As usual it doesn't happen overnight but more like 6-9 months down the road with more 2nd order and 3rd order impacts, including wealth creation.

Funny to me is nobody mention US CPI for Aug is 2.7% and core is 2.2% YoY. I don't think it will go down in 2019.

US claims that China is running out of bullets. Of course it is not. China is exporting way more than it imports form the US, however, they may simply increase tariffs further and further. There is no limit for that.

On a more general perspective, the trade war is excellent news for Chinese consumers. Chinese cheap and extremely hard working labour has long enough supported and faciliated overconsumption in the US, now the Chinese can benefit themselves more from their own achievements.

The Stock market finally appears to have given up its chicken mentality. Good news, how else does China want to become a superpower? That hysteric, overdone decline almost made me wonder, who controls some of the global financial players in HK and Singapore.

With so much optimism, it seems to me that the market is in for a nice correction soon, i am still invested in equities, but holding more cash than usual.
Anyway fixed deposits nowadays arent too unattractive

What Xi/Liu He is trying to do is quite interesting

Highly indebted SOEs are deleveraging like mad aka HNA, Anbang etc
But PBoC has been stepping up MLF injections to spur bank lending - understandably to loosen credit conditions vs expected export hits. So delever the big boys and lever the rest.
PSL for housing also halted to rein in housing bubble but yet infra building plans continues. So it's a rebalancing between export, consumption, investments and fiscal all at the same time.


I doubt a major crash like 2007 is due - PBoC still has QE to play with, worse come to worst.