Trade Saga Unknowns Seen Bringing More Pain for China Investors

(Bloomberg) -- A bad year for Chinese stocks looks set to worsen as the trade dispute between Beijing and Washington squeezes a market that’s just fallen below a key support level for the first time in two years.

Analysts said uncertainty over how the U.S.-China disagreement pans out will continue to weigh on investor sentiment, with one saying further escalation could be like a Cold War. Shanghai’s benchmark index extended a two-year low Wednesday, despite government attempts to reassure the market.

Here are some views of analysts and fund managers:

Sun Jianbo, president of China Vision Capital Management in Beijing:

  • The market is yet to bottom out as possible twists and turns in U.S.-China trade talks will continue to weigh on sentiment
  • Some big caps are still at relatively high levels and may face selling pressure
  • Stock declines would prompt investors to cut leverage, leading to further losses -- a vicious cycle

Dai Ming, fund manager at Hengsheng Asset Management:

  • Don’t see a bottom yet. There were a lot of margin calls on Tuesday and more are looming that will accelerate the drop. Management in more than 90% of companies on ChiNext and 50% on main board have pledged shares
  • Escalation in trade tension as well as disappointing May economic data surprised investors and has added to pessimism
  • Hard to gauge the impact of a full-blown trade war on China’s economy, but if the tariff list expands from finance and technology it’s very scary. This is like a Cold War
  • Yi Gang’s comments signaled the government doesn’t see systemic risk in the stock market. Investors may interpret this as meaning the national team is in no rush to step in until there’s a crash like in 2015  

Wu Kan, fund manager with Shanshan Finance in Shanghai:

  • The double whammy of domestic and external risks is hitting market confidence. Risk appetite has dropped sharply, as investors worry about more unexpected developments in U.S.-China trade talks
  • Investors are also increasingly concerned about possible “landmines” on the mainland market as some shareholders may face forced liquidation of stocks they pledged or margin calls as markets decline
  • The downtrend is unlikely to reverse soon, unless China tunes its financial deleveraging policies or the trade situation stabilizes

Howard Wang, head of Greater China equities, JPMorgan Asset Management:

  • While the correction was sharp -– and as with all corrections, unpleasant -– we are continuing with portfolio strategies focused on secular growth in China
  • Best to take longer-term view on fundamentals and valuation levels rather than what happened today or what will happen over the next few weeks
  • Given the merits of the global trading system and the problems associated with a re-mapping of supply chains, we expect a negotiated solution rather than a continuation of tariffs between the U.S. and its major trading partners

Banny Lam, head of research at CEB International Investment:

  • With Wednesday’s stronger-than-expected yuan fixing, China is trying to tell the market the yuan won’t weaken further and it’s not going to devalue the currency to fight the trade war
  • Trade concerns will hurt market sentiment in the third quarter. A potential trade war would pressure the economy in the fourth quarter
  • The yuan will keep being pressured along the way, and the central bank will step in from time to time to rein in depreciation expectations

Ken Cheung, a senior currency strategist at Mizuho Bank in Hong Kong:

  • The PBOC is probably attempting to use the stronger-than-expected fixing to avoid a simultaneous selloff in the yuan and China equities
  • Stabilizing sentiment is the central bank’s primary task at the moment
  • Trade tension and weakening growth momentum will keep the yuan under pressure in the near term, in a trading range between 6.45 and 6.50 per dollar

©2018 Bloomberg L.P.

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