MNI CHINA MONEY WEEK: Bearish Trends Resume For China Assets

--Markets May Be Positioning For Further Trade War Tariff Pain 

By Stuart Allsopp

     SINGAPORE (MNI) - China assets have resumed their bearish trend this week,

with weakness appearing to be the direction of least resistance ahead of a

crucial month-end trade meeting between Presidents Donald Trump and Xi Jinping

at the G20 summit in Argentina. There is a growing risk that U.S. President

Trump will take an increasingly assertive stance in trade talks following the

U.S. midterm elections, further pressuring Chinese assets, with the yuan at risk

of testing the 7.0 level against the greenback over the coming weeks.

     China equity markets across the board failed to break out of their

downtrend this week, with the CSI300 and the Hang Seng both closing below key

levels, at 3200 and 26000 respectively, to return the focus onto recent lows. 

     Bond yields have tracked stocks lower, with the 10-year China Government

Bond ending the week at fresh multi-month lows, even as the rally in the U.S.

stocks helped drive Treasury yields higher. As a result, U.S.-China yield

spreads hit new highs, helping USDCNH reverse last week's losses and return the

focus towards the 7.0 level.

     --TRUMP MAY UP THE ANTE

     While the yuan has actually traded sideways for several months in real

effective terms, its weakness versus the dollar will not help trade relations

between the two countries. With U.S. markets recovering most of October's

losses, Trump has some leeway to raise his demands on China, and his

administration is reportedly ready to impose further import tariffs if the

meeting with President Xi produces no major progress.

     Tariffs do not require congressional support and so the loss of Republican

control of the House of Representatives is no obstacle. Furthermore, a number of

Democrat congressmen share many of Trump's views on trade and could be critical

of any agreement between Washington and Beijing.

     The mid-term election results also showed that Trump's tariffs have no

shortage of popular support. Several candidates who opposed Trump's tariffs lost

their seats, while many who backed the tariffs won. While Republicans suffered

some losses in farm states such as Iowa, where corn and soybean farmers have

complained about tariffs, the overall results do not suggest that a trade war is

harming Trump's electability -- at least not yet.

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$]