US-China trade talks had seemed to be going well. A “historic” trade deal was possible by the end of the week. Then came two tweets by Donald Trump at the weekend that might have been tactical, to increase pressure on Beijing. But for weeks expectations of an imminent deal had been priced into the Chinese markets. China mainland’s CSI 300 index slipped 6% on Monday, the biggest fall in more than three years. The renminbi hit its lowest level against the dollar since January. The fall was followed by sharp equity price declines in Europe and the US. Bond yields and oil prices also dropped. Even after the decline the CSI 300 is up 18% in 2019. More than a 10th of all companies in the CSI 300 are up more than 50% this year. Much of this year’s rally was fuelled by government stimulus plans and better-than-expected economic data. Another factor was expectations of a positive outcome to the US-China trade talks, given weeks of optimistic guidance from both sides. Too much optimism was pr...

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