China Market Watchers Wait for Beijing's Next Move in Trade Dispute

(Bloomberg) -- All eyes are on Beijing’s next move.

Market watchers are waiting to see what the government will do to support and stimulate the economy after the U.S. raised tariffs on imports from the country and China vowed to retaliate, sidelining hopes for a deal anytime soon.

Chinese stocks fell Monday and the offshore yuan slumped to its weakest level since December. Economists and strategists at firms including Goldman Sachs Group Inc. and Morgan Stanley cut their forecasts for the yuan after tariffs were raised on $200 billion Chinese goods on Friday. China hasn’t given any details yet on its plans.

While Vice Premier Liu He said trade talks will likely resume soon, Chinese markets are beginning to price in the possibility that a deal -- once seen as a certainty -- won’t be reached in the coming weeks. Australia and New Zealand Banking Group Ltd. said there’s a 60% chance the U.S. will levy more tariffs on Chinese goods.

China Market Watchers Wait for Beijing's Next Move in Trade Dispute

For now, some investors are focused on domestic-focused equities that afford a degree of protection from trade risks. Here’s a selection of views on stocks and the yuan:

Keywise Capital Management Beijing Ltd. (Raymond Chen, portfolio manager)

  • Trade talks have reached a deadlock and it’s unlikely the situation will take a turn for the better in the near term. Now all eyes will turn to China’s policies and how it will stimulate domestic consumption to maintain growth
  • China still has a lot of cards to play in the domestic market
  • Market performance going forward will depend on whether domestic consumption stimulus policies will start to help corporate profits from 3Q
  • High-quality consumption stocks that are truly immune from the trade tensions will get a lot of interest. Any panic selling in the short term might be a chance to buy

Shenzhen Oak Valley Asset Management Co. (Tang Pu, managing director)

  • Some investors could be taking profits after Friday’s rebound. The direction of the market today could also be steered by the authorities
  • Expectations of a trade deal souring are already in place, though it’s unlikely things could get as bad as last year
  • Holds cyclical stocks that are relatively immune to trade, such as cement and animal-breeding shares

Northeast Securities Co. (Shen Zhengyang, strategist)

  • Investors who bottom-fished stocks last Friday may take profit as the upside in stocks is expected to be limited in the short term
  • The Shanghai Composite Index is expected to trade around 2,850-3,000 this week, it will be hard to stay above 3,000 unless there are sudden positives
    • NOTE: The Shanghai Composite fell 1.2% to 2,903.71 Monday
  • Investors should watch blue chips with low valuations

KGI Securities Co. (Ken Chen, analyst)

  • Investors who bought stocks last Friday may sell today after no obvious positives were announced over the weekend
  • Key resistance for the Shanghai Composite at 3,050; that level is unlikely to be broken unless talks turn positive or China announces favorable macro policies
  • The Shanghai benchmark may close below 2,900 points today; will trade around 2,800-3,050 this week

Oversea-Chinese Banking Corp. (Tommy Xie, economist)

  • Yuan may depreciate depending on China’s retaliation, the U.S.’s plan to impose tariffs on the remaining US$325 billion of products, and the market’s assessment of whether the setback is temporary or not
  • Market seen trading on headlines and expectations of whether both sides are ready to move ahead
  • Onshore yuan could test 6.98 per dollar but a setback would be temporary; the yuan may be able to consolidate in the 6.80-6.90 range
    • NOTE: Yuan down 0.78% to 6.8736 per dollar as of 5:35 p.m.; that’s the weakest since Jan. 3

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