China stocks extended a bruising sell-off on Wednesday, with blue chips slumping to their worst loss in over a year on growing concerns about the economic outlook amid a bitter trade dispute with the United States and a faltering yuan. Investors worried a depreciating yuan could trigger capital outflows in a blow to asset prices and push up costs for domestic airlines with dollar-denominated debts.
The blue-chip CSI300 index fell 2.1 percent, to 3,459.26 points, the lowest level since last May, while the Shanghai Composite Index plumbed a fresh two-year low before closing down 1.1 percent at 2,813.18 points. There were few signs of easing trade tensions between the United States and China.
The US House of Representatives overwhelmingly passed a bill on Tuesday to tighten foreign investment rules, spurred by bipartisan concerns about Chinese bids to acquire sophisticated US technology. While US President Donald Trump on Tuesday endorsed Treasury Secretary Steven Mnuchin's measured approach to restricting Chinese investments in US technology companies, investors remained anxious about the tense trade relations between the world's two biggest economies.
Raising fears of ZTE Corp's fate, two US senators urged Trump on Tuesday to reconsider his agreement with the company, saying lifting a ban on China's second-largest telecommunications maker poses "a significant threat" to national security. ZTE ended down 3.2 percent in Shenzhen, having tumbled nearly 60 percent in just 10 sessions.
Focus was squarely on China's economic outlook; data showed profits at China's industrial firms rose sharply in May, but a private survey on the nation's manufacturing sector was less encouraging and highlighted a worrisome trend that could add to pressure on growth. "Investors are selling blue-chips because they're growing pessimistic on the economy amid trade war fears, a sentiment that has also been driving the yuan lower," said Yang Hongxun, analyst at investment consultancy Shandong Shengguang, adding yuan's decline hit sectors such as airlines.
China's yuan weakened beyond a psychologically key 6.6 per dollar level for the first time in six months on Wednesday, and though it recouped some of the losses by midday bets are growing for further downside amid the escalating Sino-US trade row. An index tracking major developers on the mainland tumbled 4 percent to an 11-month low.
"There have been concerns of government restrictions on property investment, which remains an important driver of growth," Yang said. Airline shares also continue their slump on Wednesday, with Air China, China Southern Airlines and China Eastern Airlines all down for the seventh straight session. Consumer shares also tumbled, with a sector index off 4.5 percent to post its worst day since March, as investor pocketed gains amid a broad selloff in the market.
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