Chinese stocks tumbled along with the yuan as a pair of tweets by President Donald Trump undermined confidence in a trade agreement.
The ChiNext Index of technology companies and small caps dropped the most since January 2016 as trading on mainland markets resumed after last week’s holiday. The yuan also weakened the most in three years before paring its drop. People familiar with the matter said Chinese state funds stepped in as they sought to stabilize the equity market, while at least one large bank offered to sell the dollar as the yuan fell, according to traders. State-backed giant PetroChina Co. suddenly erased its decline in afternoon trading before closing lower.
China is said to be considering delaying a trip by its top trade negotiators to Washington after Trump threatened the country with steeper tariffs over the pace of trade talks.
The news “distracts the market’s focus from a nascent economic recovery to short-term volatility. Risk assets will be under pressure for now,” said Hao Hong, chief strategist at Bocom International Holdings Co. “Because both parties want a deal, I continue to believe that the long-term uptrend trumps short-term volatility.”
If Chinese equities see significant selling pressure, authorities are likely to intervene to support the market, Hong said earlier.
Optimism that China and the U.S. would reach a deal on trade helped make Shanghai equities the hottest in the world this year, although lackluster corporate earnings and concern Beijing is easing back on stimulus dragged the Shanghai Composite Index down nearly 6 percent from its April high before Monday. The benchmark has failed to hold above a number of key support levels as popular trades unraveled.
The offshore yuan fell as much as 1.3 percent to 6.8218 per dollar, its lowest since Jan. 10, before trading at 6.7797 as of 4:30 p.m. in Hong Kong. The onshore rate slid 0.46 percent to 6.7659 per dollar.
“Investors will remain bearish on the yuan, as they reprice in trade war risks because the new developments are a reversal of previous positive progress,” said Ken Cheung, a senior foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong. “The news was unexpected. Stop-loss orders will push the yuan even lower.”
Trump previously delayed increasing tariffs on $200 billion in goods to 25 percent from 10 percent after agreeing to a Dec. 1 truce with Chinese President Xi Jinping to give negotiators time to work out a comprehensive agreement.
“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate,” Trump wrote in a tweet on Sunday. “No!”