(Bloomberg) -- China’s stocks clawed back losses in afternoon trading and the yuan pared its drop after sinking through a key level, stoking speculation that authorities taking steps to halt a rout.
The Shanghai Composite Index added 0.4 percent at the close after earlier plunging as much as 1.9 percent. The yuan pared declines after sliding through 6.7 per dollar, where traders and analysts had expected intervention from the central bank. Banks and insurers led the equity rebound in Shanghai, which came after shares plumbed a new two-year low to approach levels last seen during panic selling in early 2016.
“It looks like national team buying," said Steven Leung, Uob Kay Hian (Hong Kong) Ltd. executive director in Hong Kong. “Also, the declines were too much, so there should be some bargain hunting."
The national team, as China’s state funds are called, have previously stepped in to stabilize the market during routs, or to lift sentiment ahead of important political events. They had appeared absent as the Shanghai gauge fell into a bear market last month.
Worries that a trade dispute with the U.S. will damage an economy already struggling with the effects of a government deleveraging campaign have sent Chinese markets into a tailspin, helping erase $2 trillion from the value of stocks since a January peak. The yuan’s weakness since mid-June, a period in which it’s been the world’s worst-performing major currency, has intensified the selloff.
People’s Bank of China Governor Yi Gang also helped to soothe rattled nerves on Tuesday, reiterating that China will keep the currency stable at an equilibrium level. That, and comments by another PBOC official earlier in the day, are the first clear statement on the currency by the central bank since the yuan slump intensified in mid-June.
Hong Kong’s Hang Seng Index fell 1.7 percent as of 3:27 p.m. in the city as markets reopened after a holiday. The yuan traded at 6.6811 per dollar after earlier falling to 6.7204. Some Chinese major banks sold the dollar in the swaps market, according to four traders. China’s currency has retreated more than 4 percent against the greenback since June 14, the most among 31 major currencies tracked by Bloomberg.
The trade dispute will move up a notch on Friday when the U.S. is set to impose tariffs on $34 billion of Chinese goods, with another $16 billion potentially following. The size could increase to another $200 billion of imports if China retaliates.
“Today is only part of a wider market rebound which may or may not be sustainable," said Liao Zhiming, analyst with Tianfeng Securities Co. “The real test is the Friday, when investors are waiting for the shoe to drop with Trump’s tariffs."
To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Sarah McDonald
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