(Bloomberg) -- China’s stocks slumped, with the benchmark gauge capping its longest weekly losing streak since early 2016, after U.S. equities tumbled and high-level Sino-American talks in Alaska descended into bickering and recriminations.
The CSI 300 Index slipped 2.6% on Friday, the most since March 8, driven by declines in materials and consumer staples shares. High-value names such as liquor makers Kweichow Moutai Co Ltd (SS:600519) and Wuliangye Yibin Co Ltd (SZ:000858) were among the biggest drags on the gauge, which completed a fifth week of losses.
The slide in China stocks came amid broad weakness in Asian equities after benchmark 10-year Treasury yields touched the highest level since January 2020 on Thursday. The first high-level talks between the U.S. and China since President Joe Biden took office saw each side sharply criticizing the other over human rights, trade and international alliances at the meeting in frozen Anchorage, Alaska.
“There is definitely a flavor of panic after what looks like a tough stance from both sides and what will happen in terms of trade is now the greatest uncertainty or risk,” said Li Shiyu, managing director at Guangdong Xiaoyu Investment Management Co. “I wouldn’t rule out a blow on stocks similar to what we saw in 2018-2019.”
The latest rout in China’s stocks has been triggered by worries over lofty valuations and possible monetary tightening, with state-backed funds stepping in to stabilize the market. After entering a technical correction last week, the CSI 300 pierced through its key 5,000 support line Friday afternoon before bouncing back, and a measure of 30-day volatility on the gauge is hovering near the highest since August last year.
The latest stretch of weekly losses matches the one in January 2016 when concerns about capital outflow sent mainland shares into freefall.
On Friday, the CSI 300’s 10-day moving average fell to the lowest since the start of the year. It is fast approaching the 200-day moving average level. When the 10-day moving average slid below the longer-term technical support last in 2018, the index corrected over 20% afterwards.
‘Selling Pressure’
Overseas investors turned net sellers of Chinese A-shares via the trading links on Friday, offloading a net 4.03 billion yuan ($619 million) worth of mainland stocks. That marked their first day of net selling since March 8 -- when the market fell into a technical correction from its Feb. 10 high.
“Foreign investors might interpret the meeting in Alaska as a signal for risk-off trading, adding selling pressure to the market,” said Wang Chen, Xufunds Investment Management Shanghai-based partner. “Strong support for the Shanghai Composite is seen at 3,200 while the CSI 300 may consolidate around current level, with the next focus on earnings.”
China avoided monetary easing ahead of the Lunar Near Year holiday, raising concerns over tighter liquidity conditions. That came as the central bank engineered the biggest liquidity squeeze in almost six years in January. Earlier this month, the nation’s top banking regulator jolted markets with a warning about the need to reduce leverage amid the rising risk of bubbles globally and in the local property sector.
Average daily turnover in Shanghai and Shenzhen this week was at the lowest since mid-December, and fell for a fourth week. Morgan Stanley (NYSE:MS) says that subdued trading volume onshore will dampen near-term sentiment.
“The weak turnover in both markets shows investors are cautious,” said Linus Yip, a strategist at First Shanghai Securities.