Chinese Stocks Slide to More Than Two-Year Low Ahead of Tariffs

(Bloomberg) -- China's bear market slump deepened, with the Shanghai gauge closing at its lowest since March 2016, and the yuan resumed its decline as traders braced for U.S. tariffs.

The Shanghai Composite Index dropped 0.9 percent, extending its loss in the past four weeks to 12 percent. Hong Kong's Hang Seng Index closed down 0.2 percent, paring a 1.5 percent retreat, while the offshore yuan fell 0.1 percent after a two-day advance.

Stock indexes in Shanghai and Hong Kong have fallen further than any other tracked by Bloomberg worldwide in the past month as investors fear China's slowing economy will struggle to cope with the cost of a protracted trade war. A slumping yuan has damped the attraction of Chinese assets even as policy makers vowed not to use the currency as a weapon against the U.S.

Here's What We Know About China's Stance as Tariff Hour Nears

“The trade war is a constant overhang and I don't see it being removed any time soon,” said Zhang Gang, Central China Securities strategist in Shanghai. “The yuan is under pressure again today, which is bad for sentiment.”

The first wave of U.S. tariffs on $34 billion of Chinese exports will take effect on July 6, according to a statement from the U.S. Trade Representative, which didn't specify a time. China's response of additional tariffs on U.S. goods will become effective “immediately” thereafter. If the U.S. tariffs come in at midnight Friday U.S. time, that's midday Friday in Beijing.

PetroChina Co. was the biggest drag on the Shanghai Composite Index, falling 0.8 percent. Bank of Beijing Co. led declines by smaller banks. Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. weighed on the Hang Seng Index after going ex-dividend, while Macau casino stocks including Sands China Ltd. and Galaxy Entertainment Group Ltd. extended declines from earlier in the week when data showed June revenue missed expectations.

--With assistance from Will Davies.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Philip Glamann

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