Chinese stocks slump as markets reopen after break, yuan falls

[SHANGHAI] Chinese stocks tumbled as the nation's markets resumed trading, capping their worst performance after the week-long October holiday since 2008. The yuan dropped with bond futures.

The CSI 300 Index closed down 4.3 per cent in Shanghai, with tech companies among the biggest drags, after Hong Kong equities tumbled last week. A gauge of large caps saw its biggest loss since January 2016. China's currency fell as much as 0.76 per cent against the US dollar to its weakest since mid-August, and futures on 10-year sovereign bonds dropped 0.1 per cent.

Chinese investors faced a barrage of negative news from last week, including weak manufacturing data, a close call between a US and a Chinese destroyer, a North American trade deal that's set to sideline China, accusations of election meddling and a Bloomberg News report that the country spied on US companies. A move by the People's Bank of China to cut the amount of cash lenders must hold as reserves failed to soothe the market.

BEARS BEWARE, THE YUAN WILL WEAKEN ON CHINA'S TERMS

"Sentiment will remain cautious in the near term as people watch further developments in Sino-US relations," said Linus Yip, strategist with First Shanghai Securities Ltd. "I would suggest investors take a defensive approach and watch utilities, oil stocks as well as infrastructure and rail names that are backed by China's supportive policies."

Foreign investors dumped 9.7 billion yuan (S$1.94 billion) worth of A shares via stock trading connections, Bloomberg calculations based on daily trading turnover showed, the second-highest net selling on record.

When mainland investors began their holidays last month, the outlook seemed brighter - the Shanghai Composite Index closed at its highest level since the start of August.

Hong Kong stocks lost 4.4 per cent in the four days through Oct 5 after a holiday Monday, some of the worst declines in the world. A prediction of a "full-blown trade war" next year by JPMorgan Chase & Co. strategists added to the gloom. One victim was Lenovo Group Ltd., down as much as 23 per cent Friday on concern that the PC-maker was tied to the Beijing hack. Lenovo later denied it was supplied by the manufacturer featured in the Bloomberg article. Lenovo shares fell 2 per cent on Monday.

The Hang Seng Index closed 1.4 per cent lower in a fifth day of losses, led by Country Garden Holdings Co., Galaxy Entertainment Group Ltd. and Sunny Optical Technology Group Co. Tencent Holdings Ltd. slid 2 per cent, below the key HK$300 level as it dropped for a seventh day, its longest losing streak in four years.

BLOOMBERG