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China stock rout may worsen, analysts warn no end in sight yet

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Published: June 26, 2018 2:41:21 PM

The Shanghai Composite Index was down 0.6 percent as of 1:01 p.m. If the loss persists to Tuesday’s close, the gauge will have fallen 20 percent from a January high, denoting a bear market.

China, Shanghai Composite Index, Hong Kong, Chinese companies, market, Fidelity, Zhang Gang, U.S. stocks, Shares, Qian Qimin, American consumer, Data, economic slowdownA Hang Seng measure of Chinese companies in Hong Kong fell 0.6 percent, down 19 percent from five months ago. The yuan weakened 0.2 percent to its lowest since Dec. 28. (Reuters)

Chinese stocks are on the cusp of sinking into a bear market, and analysts expect losses to deepen as concern over China’s economy, yuan weakness and a trade feud with the U.S. continue to rattle investors. The Shanghai Composite Index was down 0.6 percent as of 1:01 p.m. If the loss persists to Tuesday’s close, the gauge will have fallen 20 percent from a January high, denoting a bear market. A Hang Seng measure of Chinese companies in Hong Kong fell 0.6 percent, down 19 percent from five months ago. The yuan weakened 0.2 percent to its lowest since Dec. 28.

Hao Hong, chief strategist at Bocom International Holdings Co:

There’s still a lot of selling pressure. Investors are rushing to exit to avoid risk “Lots of people listened to brokers’ advice to build positions around 3,000, betting on a rebound. They are now under big pressure to sell” Main reason for the plunge in Chinese stocks is slowing economic growth rather than pledged shares or the trade war “The key thing is that fundamentals in China are very bad. The market started to correct even before the trade war flared up” Hard to say shares have hit a bottom. And it’s hard for the government to solve the issue as it can’t flood the markets with new money.

Sun Jianbo, China Vision Capital president in Beijing:

This is a typical bear market where the index keeps falling below supportive levels Not the bottom yet. Pessimism will keep growing as many companies are on the edge of margin calls and bond defaults. Those will cause further selloffs Shanghai Composite could fall at least another 10 percent Some long-term funds, including the so-called national team, may be interested in buying in the bear market zone.

Qian Qimin, Shenwan Hongyuan Group Co. strategist based in Shanghai:

The plunge in U.S. stocks overnight hurt confidence. NOTE: S&P 500 fell 1.4% Monday, biggest loss since April 6 Liquidity usually very tight in banking system as end of June approaches Weakening yuan is hurting companies with high levels of dollar debt and exporters, dragging down some large caps such as airlines More: Shares of China’s Big Airlines Tumble Further Amid Yuan Weakness Don’t see the bottom yet. The market may keep falling since it’s still hard to gauge the impact of trade tensions and investors will keep cutting risk.

Catherine Yeung, investment director at Fidelity International:

Markets initially rose Monday following RRR cut, but the trade issue overhang is taking center stage and will probably see a lot more volatility China may do more to support market, potentially ramping up fixed asset investment, though it still needs to go through the deleveraging process The People’s Bank of China is in a better place than other central banks because it still has the tool set. Consumers are still spending Not beyond the realm of possibility for China long term to do bilateral deals with everyone else outside of the U.S., which surely isn’t good for American consumers China could still be an outperforming market this year because we’ve already seen it down, and maybe developed markets will see some outflows due to ongoing tensions The Chinese government has a flexible approach in terms of policy tools. Data show the economic slowdown, but coming from a very high base.

Hu Hongwei, the analyst at Wanlian Securities Co.:

The market is worried the U.S. will impose more measures on China tech by end-June Property stocks lead decline on Tuesday as regulator tightens the market, contrary to the previous expectation that the sector would benefit from RRR cut.

Zhang Gang, Central China Securities analyst in Shanghai:

Shares are pressured by weakness in overseas markets and rapid depreciation in yuan, which hurts airlines, paper makers and financial sector Seems China is trying to defy trade war by weakening the yuan.

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