September 18, 2018 / 4:28 AM / in a year

RPT-WRAPUP 2-China's yuan, stocks down as US fires fresh trade salvo

(Repeating to HK market named item code)

SHANGHAI, Sept 18 (Reuters) - China’s yuan currency and its stocks edged lower on Tuesday after U.S. President Donald Trump said Washington will impose duties on an extra $200 billion worth of Chinese imports, sharply escalating the trade fight between the two economic giants.

Yet, there were no signs of panic selling as investors said markets may have priced in the latest tariff salvo from Trump, noting that Chinese stocks and the currency have already been battered in recent months by the trade row.

Trump on Monday imposed 10 percent tariffs on about $200 billion worth of Chinese imports, and threatened to levy duties on an additional $267 billion of Chinese goods if Beijing retaliates.

Chinese Vice Premier Liu He is set to convene a meeting in Beijing on Tuesday morning to discuss the government’s response to the U.S. decision, Bloomberg News reported, citing a person briefed on the matter.

Both the bluechip CSI300 index and the Shanghai Composite Index reversed earlier modest gains by the lunch break, easing 0.1 percent to 3,201.59 points and 2,648.53 points, respectively.

In Hong Kong, the Hang Seng index dropped 0.7 percent to 26,732.67 points, while the Hong Kong China Enterprises Index lost 0.3 percent, to 10,431.40.

“The fresh U.S. measures are fully within expectations,” said Wen Feng, investment manager at hedge fund house Shanghai V-Invest Co Ltd.

“China has suffered worse hardships in the past, and I believe some Chinese companies will emerge out of trade war much stronger.”

Still, he suggested investors avoid sectors most vulnerable to trade disputes, such as electronics and machinery, as market sentiment will likely remain subdued for some time.

Indeed, with around a 20 percent loss so far in 2018, Shanghai’s stock market has joined the crisis-hit trio of Turkey, Argentina and Venezuela among the world’s four worst performers. Besides the headline drop in share values, China’s currency has fallen sharply and share transaction volumes have shrunk.

“After benefiting from persistent upgrades for almost two years, China is now starting to witness downgrades,” CLSA wrote in a research note on Tuesday, referring to earnings forecasts.

The brokerage identified several sectors most affected by the proposed U.S. tariffs, including Electrical machinery and equipment, machinery, furniture, vehicles, and optical instruments.

The yuan dipped slightly against the dollar.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8554 per dollar, 45 pips weaker than the previous fix 6.8509.

The spot market opened at 6.8760 per dollar and was changing hands at 6.8639 at midday, 86 pips weaker than the previous late session close.

The offshore yuan was trading at 6.872 per dollar as of midday.

Traders said the renewed Sino-U.S. trade tension piled pressure on the yuan, but market participants refrained from aggressively testing lows for fear the authorities may quickly step in.

Investors were “spontaneously” liquidating their short yuan positions, which lifted the offshore yuan from its intraday low, said a trader at a Chinese bank.

“Market will watch out for China’s possible reaction to the new round of trade tariffs. China is likely to reject the invitation from the U.S. Treasury for the new round of trade talk,” OCBC Bank said in a note on Tuesday. (Reporting by Samuel Shen and Winni Zhou and John Ruwitch Editing by Shri Navaratnam)

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