U.S.-China talks “tense” Chinese stocks suffer “Black Friday”

The US-China talks in Alaska began with a tense atmosphere of saber-rattling, dampening market risk appetite and increasing investor selling pressure, as Chinese stocks suffered a “Black Friday”.

On Friday (March 19), the CSI 300 index closed down 2.62%, the biggest drop since March 8 and the fifth consecutive weekly decline.

CSI 300 Financial real estate Index closed down 2.51%, CSI 300 Major Consumer Index closed down 3.02% and CSI 300 Real Estate Index closed down 3.15%.

A-share major indices shocked downward throughout the day, and the GEM index once fell more than 3%. By the end of the day, the Shanghai Composite Index closed down 1.69% at 3,404.66 points; the Shenzhen Stock Exchange Index was down 2.56% at 13,606.00 points; the Small and Medium-sized Board Index was down 3.02% at 8,899.01 points; the GEM Index was down 2.81% at 2,671.52 points; and the KCI 50 Index was down 0.81% at 1,231.29 points.

On March 19, the Shanghai market traded 339.992 billion yuan and the Shenzhen market traded 432.121 billion yuan, with a combined turnover of 772.113 billion yuan in the two markets, an increase from the previous trading day’s 736.747 billion yuan.

The official media China Fund News estimated that on March 19, A-share market capitalization evaporated RMB 1.3 trillion in one day.

On Thursday (March 18), the U.S. and China held their first high-level face-to-face dialogue in Alaska since the Biden administration took office, with both sides sharply accusing each other of their policies, and the meeting opened with a rare public display of the serious stalemate in U.S.-China relations.

Yan Kaiwen, an analyst at Huaxin Securities, said the suspicion of tension between the U.S. and China hit investors’ appetite for risk-taking and lingering doubts about the overvaluation of the stock market.

Li Shiyu, managing director of an investment management company, believes that the difficult dialogue between the U.S. and China and the sharp confrontation in trade will certainly cause panic to the market and become the biggest uncertainty or risk nowadays.

He also said that he would not rule out a blow to stocks similar to that of 2018-2019.

On March 19, overseas investors became net sellers of Chinese A-shares through the Shanghai-Hong Kong Stock Connect, selling a net RMB 4.03 billion ($619 million) worth of mainland stocks. This was the first net sell-off in the stock market since March 8.

Bloomberg reported on March 19 that Xufunds Investment Management’s Shanghai partner said, “Foreign investors may have interpreted the Alaska meeting as a signal for a safe-haven trade, adding to the selling pressure in the market.”

The latest round of weekly declines in China’s stock market is similar to January 2016, when concerns about capital outflows led to sharp declines in the country’s mainland stock market, the report said.

In addition, China’s failure to ease monetary policy ahead of the Yellow New Year holiday has raised concerns about tightening liquidity conditions. Meanwhile, China’s central bank implemented the largest liquidity crunch in nearly six years in January. Earlier this month, Guo Shuqing, chairman of the Communist Party’s Banking and Insurance Regulatory Commission, shook markets with a warning about the need to reduce leverage amid rising risks of bubbles in the global and local real estate sectors.

Average daily volume in Shanghai and Shenzhen stocks this week was the lowest since mid-December last year and fell for the fourth straight week. Morgan Stanley (Morgan Stanley) said the sluggish trading volume on the Chinese mainland will hit market popularity in the near term.

First Shanghai Securities (First Shanghai Securities) strategist Linus Yip said, “Weak volume in both markets suggests investors are cautious.”