June 20, 2018 / 7:53 AM / a month ago

China stocks rebound modestly as official optimism calms trade war panic

SHANGHAI, June 20 (Reuters) - China stocks on Wednesday reclaimed some of the heavy losses from the previous session’s plunge, as upbeat comments from state media and a burst of share purchase plans by listed companies soothed immediate panic over a Sino-U.S. trade war.

However, investors remain wary about the longer-term sustainability of the rebound with Shanghai stocks up only 0.3 percent, compared with Tuesday’s nearly 4 percent tumble, as some fear escalating trade frictions between Washington and Beijing could hurt China’s already fragile economy.

The trade talks between the world’s two biggest economies have shown a pattern of “one step forward, two steps back,” Raymond Ma, portfolio manager of portfolio manager at Fidelity International said in an emailed comment.

“Sino-U.S. trade frictions will continue to have wide-spread, negative impact on market sentiment, and could hurt earnings expectations.”

The Shanghai Composite Index, which tumbled to a two-year low on Tuesday, gained 0.3 percent to 2,915.73 points. The blue-chip CSI300 index rose 0.4 percent, to 3,635.44 points.

Wednesday’s rebound was led by sectors that are less vulnerable to trade friction, such as consumer and healthcare.

Some signs of stability came after China’s state media on Wednesday talked up the country’s stock markets, while over 30 listed firms announced share purchase plans by major shareholders.

Yi Gang, governor of the People’s Bank of China, said China’s economy is well-placed to cope with external shocks.

“There are ups and downs in the stock market and so, investors should be calm and rational,” he said.

Gao Ting, Head of China Strategy at UBS Securities, said that the current tariff plans are likely to have a limited macro impact, unless tensions escalated further or protectionism grows in other economies.

“Sectors with a higher exposure to tariffs will be more negatively affected, such as electronic components and industrials,” he wrote. (Reporting by Shanghai Newsroom; Editing by Sam Holmes)

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