Chinese shares fell amid US recession fear, concern over trade talks

Chinese shares fell on Tuesday, extending the previous day's sharp losses, as investor sentiment remained fragile amid fears of a U.S. recession while concerns over a protracted U.S.-China trade war also weighed.

At the midday break, the Shanghai Composite index lost 0.99 per cent to 3,012.90 points. China's blue-chip CSI300 index was down 0.59 per cent, with its financial sector sub-index easing 0.52 per cent and the healthcare sub-index losing 0.97 per cent. But the consumer staples sector rose 1.22 per cent and the real estate index gained 0.31 per cent after a sharp fall on Monday. The U.S. Federal Reserve should consider raising the proportion of short-term Treasury bonds it holds to give itself more options to respond to economic pullbacks, as an inverted U.S. yield curve sparked concerns of a recession in the world's largest economy.

The U.S.-China trade war poses the biggest risk to global stability and fiscal stabilisation is needed to respond to economic shocks in Europe, IMF First Deputy Managing Director David Lipton said on Monday. Analysts at China Fortune Securities said foreign investors' eroding sentiment is likely to continue to drag on mainland markets. "In the near term, the risks of further market drops have not been fully released, and the index still has a potential for further drops," the analysts said in a note.

"Recent sustained net outflows of foreign capital also show that offshore investors' risk appetite has fallen ahead of onshore investors," they said. Chinese Premier Li Keqiang on Monday reaffirmed Beijing's pledge to further open up to foreign investment as he met with global business executives, and sought to assure them that the rights of foreign firms would be protected.

Chinese H-shares listed in Hong Kong were steady at 11,231.73, while the Hang Seng Index was up 0.14 per cent at 28,564.30. The smaller Shenzhen index was down 1.03 per cent and the start-up board ChiNext Composite index lost 0.93 per cent. Around the region, MSCI's Asia ex-Japan stock index firmed 0.22 per cent while Japan's Nikkei index gained 2.13 per cent.

The yuan was quoted at 6.7091 per U.S. dollar, nearly unchanged from the previous close of 6.709. The largest percentage gainers on the main Shanghai Composite index were DuoLun Technology Corporation Ltd, up 10.06 per cent, followed by Zhengping Road & Bridge Construction Co Ltd, gaining 10.02 per cent, and Chongqing Gangjiu Co Ltd, rising 10 per cent. The largest percentage losers on the Shanghai index were Beijing Airport High-Tech Park Co Ltd, down 10.03 per cent, followed by Beijing Teamsun Technology Co Ltd, losing 10.03 per cent and Chongqing Three Gorges Water Conservancy and Electric Power Co Ltd, declining 9.79 per cent.

So far this year, the Shanghai stock index is up 22.02 per cent, while China's H-share index is up 10.9 per cent. Shanghai stocks have risen 3.47 per cent this month. The sharp rally in Chinese stocks this year has been driven more by investor optimism than fundamentals. The top gainers among H-shares were Shenzhou International Group Holdings Ltd, up 3.67 per cent, followed by China Telecom Corp Ltd, gaining 2.29 per cent and Hengan International Group Company Ltd, adding 1.95 per cent. The three biggest H-shares percentage decliners were SINOPHARM GROUP CO LTD, which fell 3.16 per cent, GF Securities Co Ltd, down 1.6 per cent and Haitong Securities Co Ltd, 1.5 per cent lower.

In Hong Kong, the sub-index of the Hang Seng index tracking energy shares rose 0.6 per cent while the IT sector fell 0.4 per cent. The top gainer on the Hang Seng was Shenzhou International Group Holdings Ltd, up 3.67 per cent, while the biggest loser was China Shenhua Energy Co Ltd, which was down 1.42 per cent.