Markets close mixed following early gains

Stock markets closed mixed on Tuesday after selling was largely concentrated in national defense military, non-ferrous metals and agriculture stocks.

The benchmark Shanghai Composite Index fell 0.36 percent to close at 3,373.58 after early gains lifted by the news that Vice Premier Liu He held a phone conversation with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Tuesday morning.

The two sides were reported to have had a constructive dialogue on issues such as strengthening bilateral coordination of macroeconomic policies and the implementation of the China-US phase-one economic and trade agreement.

The smaller Shenzhen Component Index rose 0.02 percent to finish at 13,669.41, while the ChiNext Index jumped 0.63 percent to end its trading day at 2,701.60.

Combined turnover on the two bourses came to 942.0 billion yuan (US$136.3 billion), compared with 897.0 billion yuan in the previous session.

The rise in A-share daily turnover moderated recently, suggesting slowing fund inflow, said Wendy Liu, head of China strategy at UBS Investment Research.

 “While we are constructive on Chinese equities overall, we note concerns like the global spread of COVID-19, deteriorating US-China relations and company specific interim result misses.”

Most sectors suffered, with the national defense military industry posting strong losses. Non-ferrous metals and agriculture stocks were also among the worst performers.

The ChiNext reforms, introduced on Monday, will have limited impact on the main board's liquidity, said Steven Sun, head of research at HSBC Qianhai Securities.

As with the STAR Market, lifting trading limits should mean higher turnover; in turn, a more active market can facilitate market-oriented price discovery. Despite this, Sun thinks the impact on liquidity on the main board will be limited.

“ChiNext generates 20 percent of overall A-share trading turnover versus the STAR Market's 3 percent. And, unlike the main board, new investors are required to hold securities of 100,000 yuan, creating a potential barrier to entry for retail investors,” he said.