China, Hong Kong stocks fall on U.S.-China trade deal uncertainty

China and Hong Kong stocks retreated on Monday as markets awaited more information on trade talks between the United States and China after mixed signals last week. The CSI300 index fell 1.5%, to 3,877.10 points at the end of the morning session, while the Shanghai Composite Index lost 1.3%, to 2,967.01 points. Washington and Beijing labeled the two-day talks last week as "productive" and "constructive", with the U.S. Trade Representative's office saying that high-level negotiations will take place in October, as previously planned.

However, investors' appetite for risk assets was curbed after Chinese officials unexpectedly canceled a visit to farms in Montana and Nebraska. Trade experts, executives, and government officials in both countries said that even if the September and October talks produced an interim deal, the U.S.-China trade war has hardened into a political and ideological battle that runs far deeper than tariffs and could take years to resolve.

Fading hopes for a trade breakthrough after China canceled U.S. farm visits led to a drop in U.S. stocks and could be also a major drag on the A-shares in the short term, Tebon Securities said in a report. Major international index providers on Monday progressed the inclusion of the A-share market into their indexes amid Beijing's pledge to further open up its financial markets, with foreign investors pouring money into the stocks in the previous session ahead of the move.

FTSE Russell completed its second tranche of A Share inclusion on Monday, while S&P Dow Jones Indices also added eligible China A-shares accessible via the Stock Connect linking Hong Kong and the mainland. "We received positive feedback from index users on our initial tranche of over 1000 small, mid and large-cap China A-Shares in June, with many asset managers adjusting their portfolios as part of the inclusion process," said Jessie Pak, Asia Managing Director of FTSE Russell.

In Hong Kong, stocks were on track for their fifth straight session of losses following protests over the weekend. The Hang Seng index dropped 0.9%, to 26,207.26 points, while the Hong Kong China Enterprises Index lost 0.9%, to 10,277.71. Hong Kong police fired tear gas on Sunday to break up pro-democracy protesters who trashed fittings at a railway station and shopping mall, the latest confrontation in more than three months of often violent unrest.

Around the region, MSCI's Asia ex-Japan stock index was weaker by 0.29% while Japan's Nikkei index was up 0.16%. The yuan was quoted at 7.1126 per U.S. dollar, 0.3% weaker than the previous close of 7.0915. As of 04:17 GMT, China's A-shares were trading at a premium of 29.63% over the Hong Kong-listed H-shares.

Also Read: China's exports fall in August as US trade war rumbles