China stocks extend losses as risk aversion deepens

China stocks shed early gains to end lower on Monday as investors weighed the confluence of risks in the upcoming US-China trade talks, Chinese economy and global oil prices. Financials were the outliers, anchoring the market and steadying the major indices. At close, the Shanghai Composite index was down 0.1 percent at 2,575.81. The blue-chip CSI300 index was also down 0.1 percent. Both indices had traded higher in the morning session, but ended weaker for a third consecutive day.
CSI300's consumer staples sector sub-index ended down 0.6 percent, the consumer discretionary sector closed 0.3 percent lower, and the healthcare index was down 0.3 percent. The smaller Shenzhen index and the start-up board ChiNext Composite index both lost 0.3 percent.
The fall was an extension of Friday's downturn, which was caused by the double whammy of uncertainty ahead of the meeting between the US and Chinese presidents and the plunge in oil prices, said Zhang Gang, an analyst at Central Securities in Shanghai. CSI300's energy sub-index lost 1 percent.
"People are cautious about whether there will be an agreement at the end of the G20 meeting," he said. "We also have the slump in oil prices. That's where most of the pressure has come from today."
Risks of trade war escalation continued to weigh on the market. China's main goal at the G20 meeting is to get the United States to refrain from raising the tariffs in January, Chinese economists and academics say. However, President Xi will not be bullied into making a bad deal, they added.
With uncertainties still high, defensive stocks were sought after, Zhang added. CSI300's financial sector sub-index closed 0.3 percent higher, whereas the real estate index closed 0.7 percent firmer.
It was not all bad news. On Monday, China's supervisor of state assets announced the launch of 10 billion yuan fund to help ease pressure on cash-strapped private companies in Shanghai. The fund invest in firms with good prospects and technological strength.
The market, however, is growing numb of such policy announcements, said Cau Xuefeng, the Chengdu-based head of research at Huaxi Securities, who reckons that investors will place greater emphasis on economic fundamentals.
"If you look at economic growth in China, we haven't really got anything that exciting at the moment," he said. "For share prices to rebound, companies' profitability has to improve."