China Shares End Lower, Foreign Outflow Concerns Weigh

At the close of trade, the Shanghai Composite index was down 1.07% at 3,518.33 and the blue-chip CSI300 index lost 1.67%, having finished weaker on Tuesday.

Analysts said there was a lack of factors for any upside momentum, while lofty valuations in some parts of the market were a cause of concern.

The market was also under pressure from rising Sino-West tensions after G7 leaders took the Asian nation to task over a range of issues, which Beijing called a gross interference in the country’s internal affairs.

Among the worst-performing sectors on Wednesday, the material sub-index slumped 3.08% as a report on restrictions over state-owned firms’ overseas commodity exposure accelerated a sell-off in the sector.

The healthcare sub-index lost 3.01%, with sector heavyweight Wuxi AppTec Co Ltd sliding 5.53%.

The smaller Shenzhen index ended down 2.34% and the start-up board ChiNext Composite index was weaker by 4.18%.

“Investors are also nervous ahead of the U.S. Fed meeting, as Fed’s hawkishness would push the dollar higher, pressuring the yuan and weighing on the A-share market by prompting foreign outflows,” said Yan Kaiwen, an analyst with China Fortune Securities.

China’s central bank has directed financial institutions to hold more foreign exchange in reserve, a move that analysts say could help temper a rally in the yuan after the currency hit a three-year high against the dollar on Monday.

Long-term appreciation in the yuan could have a large negative impact on China’s economy even if there was no substantial effect on the country’s exports in the short term, a former senior official at China’s foreign exchange regulator warned.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.42%.