CHINA’S stocks fell sharply yesterday as investors returned after a long national holiday, catching up to a global selloff that dragged down many emerging markets while China’s financial markets were closed.

The yuan was also down, as expectations of more easing measures by China, plus surging U.S. bond yields, exert downward pressure on the currency.

The Shanghai Composite Index dropped 3.72 percent, the steepest decline since June 19. The blue-chip CSI 300 index closed down 4.30 percent.

China has stepped up liquidity support across the financial system this year as policymakers have focused on calming fears of capital outflows and sought to soothe battered markets.

On Sunday, the People’s Bank of China announced a 100-basis-point cut to banks’ reserve requirement ratio (RRR), stepping up efforts to support the economy and calm market worries.

Yesterday was the first chance for investors on the Chinese mainland to react to the escalating trade tensions with the United States and a selloff in overseas markets last week after the long holiday to celebrate the National Day.

“An RRR cut is not enough to counter the impact of the trade war. The economy is quite weak, and I see a growing number of companies selling their assets,” said David Dai, general manager of Shanghai Wisdom Investment Co., a hedge fund. “And today’s fall is not surprising after weak performance in external markets during the holiday.”

The MSCI Emerging Markets Index tumbled 4.5 percent last week and Hong Kong’s benchmark Hang Seng Index sank 4.4 percent. The surge in the U.S. Treasuries yield to a seven-year high roiled global financial assets from stocks to developing-nation currencies on mounting concerns about capital outflows last week.

“I think investors’ reaction is a little exaggerated,” said Wu Zhaoyin, chief strategist at AVIC Trust Co., which manages roughly 650 million yuan (US$94.6 million) in assets. He said that while Hong Kong is feeling the pinch from higher U.S. interest rates due to its currency’s peg to the dollar, the mainland’s monetary policy is independent from the Fed’s.

Stocks also dropped as a purchasing managers’ index showed China’s manufacturing industry expanded at the slowest pace since February last month.

Overseas investors sold a combined 9.6 billion yuan in A shares through the exchange links with Hong Kong yesterday, the first daily net outflow in four weeks, Bloomberg said. (SD-Agencies)