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China's stock index falls below 3,000 for 1st time since 2016 amid growing trade tensions

[SYDNEY] Chinese stocks slumped on Tuesday, with the benchmark gauge falling below 3,000 for the first time since September 2016, amid growing trade tensions with the US.

The Shanghai Composite Index retreated 1.7 per cent and shares tumbled in Hong Kong after US President Donald Trump threatened to slap tariffs on another US$200 billion in Chinese imports. China's government said it will take "strong" counter measures if the US issues new levies. The yuan weakened to its lowest level against the greenback since mid-January.

The latest threat from Mr Trump comes before the first wave of 25 per cent import levies takes effect on July 6. The tariffs target Chinese President Xi Jinping's Made in China 2025 plan that seeks to develop sophisticated manufacturing capabilities.

While "growth wise it's unlikely to be too much of a dent, for the equity space, there's a worry that it might topple the market over," said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte Ltd. With investors also having to contend with a slowing Chinese economy and a strengthening US dollar, the selloff in mainland equities is poised to deepen, she said by phone.

The ratcheting up of tensions is a blow to sentiment in the struggling US$7.2 trillion equity market, where turnover has been dwindling on concern that the trade spat will hurt China's already-slowing economy. More specifically, it's a direct challenge to high-tech investing themes, which were some of the hottest plays last year.

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The 3,000 level has been seen as a red line that would invite government intervention. Some institutional investors are "proactively" making plans to buy A shares and will buy more if the gauge falls under 3,000, the China Securities Journal reported Tuesday, without saying where it got the information or identifying the institutions.

The latest tariff list "keeps trade war risks alive," said Shane Oliver, head of investment strategy at AMP Capital, which manages A$188 billion (S$188.16 billion). It's more "classic Art of the Deal stuff" with an agreement likely in the coming weeks, "but the risks are high and the tariffs could well be implemented before the issue is resolved," he said in an emailed note.


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