The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.
“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”
China’s yuan fell as much as 0.28% to 7.0238 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 5 basis points to 2.86%, the lowest since July 1.
Overseas investors sold 16.4 billion yuan of China stocks Friday, the most since a record 17.4 billion yuan was dumped on July 14. Turnover rose to 1.3 trillion yuan, the 17th session over the 1 trillion yuan mark.
The Chinese government has been trying its best to paper over the cracks in the economy. The boom in IPOs and the efforts to repatriate foreign listings of its tech champions are all aimed at creating a façade of capital market strength and stability. It fulfills the secondary purpose of trying to protect Hong Kong’s status as a major financial hub despite the destruction of its legal freedoms.Click HERE to subscribe to Fuller Treacy Money Back to top