Headline indices of the Mainland China equity market fell to 11-week low on Thursday, 09 May 2019, as jitters increased ahead of pivotal U. S.-China trade talks in Washington on Friday after Trump claimed that China 'broke the deal'. The risk sentiments fell further after April data from the People's Bank of China showed aggregate financing and new lending both fell short of projections, calling into question the strength of the world's second-largest economy. Sectors fell across the board. Consumer and healthcare firms led the decline, as foreigners continued to retreat via the Stock Connect linking the mainland and Hong Kong. At closing bell, the benchmark Shanghai Composite Index sank 1.48%, or 42.80 points, to 2,850.95. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped by 1.28%, or 19.59 points, to 1,510.72. The blue-chip CSI300 index fell 1.85%, or 67.76 points, to 3,599.72.
Risk aversion selloff continued after the US President Donald Trump accused China of scuppering the two nations' trade talks, fanning traders' fears that his threatened tariff increases on Chinese goods will be implemented on Friday. US President Donald Trump said on Wednesday that China "broke the deal" it had reached in trade talks with the United States, and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing "stops cheating our workers."
The US Trade Representative's office announced that tariffs on $200 billion worth of Chinese goods would increase to 25% from 10% at 12:01 a.m. (0401) GMT on Friday, right in the middle of two days of meetings between Chinese Vice Premier Liu He and Trump's top trade officials in Washington. Beijing has announced it would retaliate if tariffs rise.
The risk appetite faded after April data from the People's Bank of China showed aggregate financing and new lending both fell short of projections, calling into question the strength of the world's second-largest economy. On the trade-dispute front, China turned more hawkish in tone, with the Commerce Ministry saying in a statement late Wednesday that necessary countermeasures will be taken against any trade tariff increases by Washington. President Xi Jinping's top trade negotiator Liu He will be in Washington for two days through Friday for a fresh round of trade talks.
Foreign buying of Chinese stocks has slowed significantly since March and turned negative in April and May, as investors worried that Beijing is turning more cautious about further stimulus amid signs that the economy is starting to stabilise.
Liquor distillers and insurance companies paced the decline. Foreign investors also added fuel to the sell-off, dumping Chinese stocks for a fifth straight day via the exchange link with Hong Kong.
Favoured picks by foreign fund managers, including liquor distiller Kweichow Moutai and Ping An Insurance Group, all retreated. Kweichow Moutai dropped 2.9% to 858.81 yuan and major rival Wuliangye Yibin lost 4.2% to 91.81 yuan. Ping An slid 2.7% to 76.66 yuan and China Life Insurance sank 3.7% to 32.11 yuan.
Property developer Tahoe Group tumbled 8.8% to 15.96 yuan. The company received a letter from the Shenzhen Stock Exchange, which questioned its ability to repay debts. The inquiry by the stock exchange highlighted the huge gap between the developer's short-term debt and cash flow.
ECONOMIC NEWS: China consumer price inflation at 6-month high - Rising food price drove China's consumer price based inflation to its six-month high in April, National Bureau of Statistics said. The inflation was up 2.5% against 2.3% rise in March. The producer price index, which tracks the prices of goods circulated among manufacturers and mining companies, inched up 0.9% year-on-year, the highest in four months, up from 0.4% increase in March.
CURRENCY NEWS: China's yuan declined against the U. S. dollar on Thursday, as China's central bank set stronger official yuan midpoint as jitters increased ahead of pivotal U. S.-China trade talks in Washington. Prior to market open, the People's Bank of China (PBOC) set the midpoint rate at 6.7665 per dollar, 0.1% softer than the previous fix of 6.7596. Spot yuan breached the psychologically critical 6.8 level and was on track for a sixth straight loss. Onshore yuan opened at 6.7905 per dollar and was changing hands at 6.8087 at midday. That was 256 pips lower than Wednesday's late session close of 6.7831, and 0.62% weaker than Thursday's official midpoint of 6.7665, the weakest in nearly three months. The offshore yuan was trading at 6.8315 per dollar, 0.31% lower than the onshore spot.
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