Shanghai Index sinks to two-year low amid looming US tariffs

An electronic ticker displays the figures of the Shanghai Composite Index, top, and the SZSE Composite Index in Pudong's Lujiazui Financial District in Shanghai. The index performed poorly in the antiShow more

The Shanghai Composite Index dropped to its lowest since September 2016 and a whisker away from the 3,000-point mark as the US prepared to release a list of goods upon which it will impose tariffs.

The benchmark was down 0.9 per cent at 3,016.57 as of the mid-day trading break on Friday, heading for a fourth straight weekly loss, its worse run this year. Kweichow Moutai Company was the biggest drag on the gauge, which hasn’t dropped below 3,000 since 2016. The ChiNext measure of small-cap and technology stocks fell 1.9 per cent, while Hong Kong’s Hang Seng Index slipped 0.1 per cent, erasing an earlier gain.

“There’s worry over the slowing economy and trade tensions as the U.S prepares to release the list of tariff targets,” said Francis Lun, Hong Kong-based chief executive officer of Geo Securities. “All indicators are pointing to an economic slowdown.”

Official data Thursday showed industrial output, retail sales and investment in May were all below economists’ expectations, while the central bank’s decision to refrain from following the Federal Reserve in raising borrowing costs underscored a level of caution about the state of the Chinese economy. The US tariff plan has compounded the downbeat mood.

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Wang Qing, a Shanghai-based analyst at Yuanta Securities Company, said the weaker economic data and US trade dispute have pressured A shares, and that the Shanghai Composite could fall below 3,000 if tariff news prompts panic selling by retail investors.

“Further downside in the market could be limited as China may ease its credit tightening to offset the potential hit from US tariffs,” the analyst added.

Geo’s Lun said there is also concern that Chinese depositary receipts will drain liquidity from the market, which is hitting smaller companies hardest. There could be more than $700 billion worth of new issuance via CDRs, with the first listing likely in the third quarter, according to Goldman Sachs Group.

“There’s fear that CDRs will take money out of the market because whenever you have large listings there are withdrawals,” Lun said. “Credit tightening and deleveraging is hitting the tech sector or small-cap stocks more.”

President Donald Trump has approved tariffs on Chinese goods worth about $50 billion, according to a person familiar with the situation. The US is due to release a list later Friday with more details on the products affected.