(Bloomberg) -- Chinese stocks and the yuan slumped as fears of worsening Sino-American tensions further undermined investor confidence after a slew of disappointing economic developments.
The Hang Seng China Enterprises Index tumbled 3.1% to cap its biggest one-day loss in nearly a month. The onshore benchmark CSI 300 Index slid 1.1%. The offshore yuan fell as much as 0.4% to 7.2534 per dollar, the weakest in more than three months.
Stock losses deepened in the afternoon following reports that US President-elect Donald Trump is poised to pick two men with track records of harshly criticizing China for key positions in his new administration. That bolstered concerns over geopolitical tensions. Sentiment had already been cooling with China’s underwhelming fiscal stimulus announcement last week and a slower-than-expected credit expansion for October.
“Trump’s preference to strengthen his negotiating positions with aggressive appointments like these should not be a surprise,” but underscores the high likelihood of the president-elect following through on his campaign pledge to implement punitive tariffs on China’s exports to the US, said Homin Lee, senior macro strategist at Lombard Odier.
Senator Marco Rubio — who has taken an aggressive stance on China’s emergence as an economic power and twice been hit with sanctions by Beijing — is expected to be named secretary of state, Bloomberg News reported. Representative Mike Waltz, who views China as a “greater threat” to the US than any other nation, is in line to be national security advisor.
Chinese equities have struggled to regain traction after peaking in early October, with the economic recovery remaining wobbly and the government reluctant to roll out large-scale fiscal stimulus to revive domestic demand.
In a highly-anticipated legislative meeting last week, authorities focused on fixing local governments’ debt woes and stopped short of unleashing fresh policy to boost consumption. The outcome disappointed some investors who had hoped for stronger economic support, especially given the threat of higher tariffs under Trump.
Some traders may also be taking money off the table as the market’s outlook remains unclear. Major onshore benchmarks including the CSI 300 Index and the Shanghai Composite gauge are trading near overbought levels.
Markets got little boost even as Bloomberg reported that China is planning to cut taxes for home purchases, part of the government’s efforts to revive a moribund housing market. A Bloomberg Intelligence gauge of Chinese developer shares fell more than 4%.
The People’s Bank of China refrained from providing support for the yuan, with its official fixing set at the weakest level since September on Tuesday morning.
“Concerns over Hong Kong stocks reflect more than just market reactions to Trump’s cabinet picks,” said Billy Leung, an investment strategist at Global X ETFs in Sydney. “I also think there is a lingering impact from concerns of economic stimulus and a gap between market expectations and the level of support being provided.”
--With assistance from Wenjin Lv and April Ma.